Two Year Treasury Yields Are Now The Highest Since 2008

Equities were mixed as President Trump announced his tax plan; the approval of such will cause a brutal fight in Congress. The NASDAQ and the smaller capitalized companies out performed yesterday. The former because of an acceleration in the expensing of capital good and the later because of potential greater economic activity and inflationary pressures as well as lower tax rates. Financials were also strong on rising interest rates.

The immediate response of the proposal was what all expected complete condemnation from the left side of the aisle and internal bickering on the right side.

I think it is accurate to write society is exhausted by the ineptitude and the inability of Washington to accomplish any objective. The environment is toxic, a toxicity that I am certain will continually be reflected in any immediate or intermediate election.

Speaking of elections, the Iraqi Kurds voted overwhelmingly for independence. The vote is nonbinding, but both Iraq and Turkey are adamantly against the referendum. Will Turkey follow through on its threat to close the Kurdistan pipeline that runs through Turkey? This is the only source of revenue for the Kurds, pumping about 500,000 barrels a day.

If the pipeline is closed, how will the oil markets be affected? Global demand is greater than current production by over 1.2 million barrels a day. Will oil prices rise to $60 barrel in the immediacy if a closure does take place? Will such an increase cause inflation to rise, negatively impacting the bond market?

Speaking of the bond market, long dated Treasuries fell about 1 1/2 points as yields are quickly approaching 2017 highs. One month ago, yields were around annual lows. The reasons for rising yields… delayed response to Yellen’s remarks, durable goods orders that were stronger than expected, and potential tax reform. The two-year Treasury, or the instrument most sensitive to monetary policy, is now yielding the most since 2008.

What will happen today? There is little on the economic calendar, thus suggesting headlines may overly influence the markets.

Last night the foreign markets were mixed. London was down 0.22%, Paris was up 0.05% and Frankfurt was up 0.34%. China was down 0.17%, Japan was up 0.47% and Hang Sang was down 0.80%.