2023-12-10 23:00:01
There is one indisputable compass of the market in recent weeks and it is the direction of bonds. Evidently, a stock market in bullish effervescence draws more attention, in which the state of happiness has been declared, and in which it remains to speed up the journey to the pre-Lehman highs in Europe and the Wall Street records of the end of 2021 in its main indices .
But the magnet that directs the compass of the entire market is the American bond, the main reference for the investor of the ten years, the T-Note, which on October 19 reached 5% profitability, and which this week has reached 4.1%. Expectations of rate cuts have accelerated, particularly for me in an incomprehensible way, to the point of contemplating up to six cuts in the price of money.
The estimate of rate cuts on both sides of the Atlantic is very similar, which is why the Spanish bond has experienced the same rally as the American one, going from exceeding 4% in October to losing 3.2% this week.
If the forecasts of a drop in the price of money that are opening up in the market are correct, it is clear that the state of happiness in which we have settled gives continuity to what is happening in fixed income and, by mimicry, also in the stock market because the discounts Rates are not the result of central banks being left out of the game. If the word recession appears on the horizon, it is only technical.
The question you have to ask yourself right now as an investor is whether expectations of rate cuts are not being exaggerated. And it is more of a question for investing in fixed income than in the stock market. The equity investor is aware that the stock markets are not attractive due to their entry price and it is not being emphasized to them that it is the promised land in the market. However, the fixed income strategies of the analysis firms focus their message to the investor on debt like Moses opening the waters of the Red Sea to direct savings to the best of destinations.
I have no idea how far interest rates can go, but we all know that the return trip is not at the zero money price of the Covid and Lehman anomaly. A few weeks ago one of the market strategy managers who offers me the most credibility told me that the interest rate at which the US market has to be stabilized is 3.75%. If so, there is not much distance left for the fixed income rally, which has already been done.
I add a concern: What if expectations of rate cuts are exceeded? Perhaps the bond journey does not have a single direction and we again see a T-Note at 4.5%. For those who buy fixed income tomorrow, these are losses, compensable by the coupons for those who invest directly, but difficult to understand for those who are going to the promised land in an investment fund.
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