ALL THINGS BIG AND SMALL 2.0

Chart 1: Treasuries yield rise across the board                                                                                                  Chart 2: Normalised Principal Component Analysis loadings show Treasuries rise while USD falls  Chart 3: 30 year yield minus 3 month, 1 year, 5 year and 10 year yields Most retail investors invest in the Equities market. But in this increasingly inter-connected financial markets environment, its important to look at the Bond Market and the US Dollar to understand the situation in the Equities market. The rise in the SP500 is unsustainable if bond yields rise and is even more unsustainable if...

If you are in the US stock market with a short-term trading objective, it is relevant to know the degree of correlation of the US Dollar market and the US Treasuries market with the US stock market as represented by the Dow Jones Industrial Average (DJI). Note:We use DJI as the reference Index instead of the SP500 or the Nasdaq because it’s all about Trump’s tariffs now and tariffs are on Goods, not Services. And on Manufacturing, not IT Technology. Ticker Symbols Output variable-DJI: Dow Jones Industrial Average Input variables DXY: US Dollar Index SHY: iShares 1 to 3 year Treasuries ETF IEF iShares 7 to 10 year Treasuries ETF TLT: iShares >20 years] Treasuries ETF The chart above shows the performance of all the variables. The variables have been standardized/normalized by transforming into Z-Score. So, we need to see the degree of correlation between the input variables and the DJI. We use the simple Pearson’s Coefficient of Correlation R because  our data series only consist...

  SHY: 1-3yr Notes, IEF:7-10yr Bonds, TLT:>20y Bonds. The US debt situation is not sustainable. As of March 2025 approximtaley 30% of the publicly held US marketable Treasuries of USD 30 Trillion will mature in 2025. They will have to refinance it by issuing new debt but investors will demand higher and higher yields to offset the risk they perceive as the economy goes into a tailspin under a crazy Administration. The rise in yields will affect the 30yr and 10 yr Treasuries most.  Key Upcoming Maturities : June 30, 2025 :  132 b i l l i o n i n s e c u r i t i e s h e l d b y f e d e r a l t r u s t f u n d s ( e . g . , C i v i l S e r v i c e R e t i r e m e n t F u n d ) w i l l m a t u r e , a l o n g s i d e 132  bi ll i o n in  sec u r i t i es  h e l d  b y  f e d er a lt r u s t f u n d s ( e . g . , C i v i l S er v i ce  R e t i re m e n t Fun d )  w i ll  ma t u re , a l o n g s i d e  15 billion in interest payme...

  In Economics and Finance, there is the concept of risk-adjusted rate of return on investment. When Investment analysts calculate risk-adjusted rate of return on investment, formulas like the Sharpe Ratio and the Sortino Ratio are widely used. These  have an input component called the 'risk-free rate of return. (see Sharpe Ratio formula in image below). For decades, because of the dominance of the USD  in trade and its status as a safe heaven currency, and because the size of USD Treasuries market is so huge (much bigger than all the stock markets put together) and therefore infinitely liquid, the risk-free rate of return was assumed to be US Treasuries. However, the current antics of the MAGA Man has caused the USD to plummet, and the yield on US Treasuries to rise (which means their prices fall. Bond prices fall when yields rise) Would you hold US assets denominated in USD? So US Treasuries are no longer risk-free and the classical texbooks on Economics and Finance nee...

  Introduction More important than the daily ups and downds of the Dow Jones, the S&P500 and the Nasdaq Composite is the big picture insights that can be gleaned from other asset classes such as the US Treasuries (Bonds) yield, the US Dollar, and the spot price Gold. Refer to the charts above. US Treasuries Yields (data from FRED the Federal Resserve Bank of Saint Louis) Theoretically Bond prices rise in an deflationary economic environment (i.e. their yields in % fall). Bond yields determine interest rates in an economy. So because demand for loans is low in slow economic growth conditions, interest rates charged by lenders e.g. banks fall, which means bond prices rise. This is because when interest rates fall, existing bonds with higher coupon rates (fixed interest payments) become more attractive to investors than newly issued bonds offering lower interest rates. This increased demand for the existing, higher-yielding bonds drives their prices up.  But our chart above s...