2023 is the year the 10 year Note that is getting so much attention matures. The paper has a 2.50 coupon, yields 2.78 and has a price of 97-17. They yield is 93 bp higher than 1 year ago. At any given time, the prevailing yield can be compared to growth prospects or plugged into equity valuations. The rub is the ability to even guess where it would be in 2023 is only a function of the guesses of 1 year rates extrapolated out into the future. How many, honestly, saw the yield nearly 100bp higher from July-Aug of last year?
The real analytical value comes from the movements of the securities inside and beyond relative to the Note. Long time readers are acquainted with our affection for a steep curve. 2/10 is now a whopping 245-ish. Proxies out on the Eurodollar Strip blew out to levels never seen since conception. With the Fed attempting to anchor the base with FG, 2014 money is priced nearly 25bp "better" than a month ago while the long end prints new multi-year high yields.
As of the last few sessions, the "break-point" has shifted forward. Proxies into the 5 year have made new highs. Red/Green printed 93 and 3/5 is flirting the mid-80s (h/t @interestarb) [ If we've lost you, feel free to reach out or read The Eurodollar Futures and Options Handbook; I hear 1 of the contributors was awesome!] What we are saying is, even though pundits and reporters have hyped the 10 year yield, the recent significant development has been the shift FORWARD of the yield surge DESPITE the increased focus on FG. Notice-Alert-Pay Attention- Nowhere in the above paragraphs have the letters t,a,p,e,r appeared in sequence !
Finally, for now, 1 year rates have been very stable and are 7bp lower (roughly) than a year ago. Our FF model (based on a 12 month money plug) hasn't even jiggled. FG is creating a line on the horizon beyond which there be dragons. As we suggested in June, when this concept becomes embedded (future certainty) the time frame tends to advance forward. That is exactly what is happening. Forget adjusting LSAPs (I hate the other term), and soon forget FG...markets find their way and the universe self corrects. When John Connor saw dark clouds on the horizon he said, "There's a storm coming, mom." Obviously someone who watched Eurodollar Strips, Sarah Connor replied, " I know son, I know."