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Bonds Throw A Party (BentinPartner Daily 23-Jun-22 )

Updated: Jun 27, 2022

BentinPartner Daily

Dear Reader,

US stocks initially dropped on the first words of J. Powell’s House testimony as he reaffirmed his commitment to fight inflation. Then they recovered as the Fed Chair acknowledged the risks of recession that were “very challenging” and the impact of rate hikes on the economy.

Major indices closed mostly unchanged but the real action took place in bonds which rallied strongly. Commodities dropped as did the dollar while gold climbed, albeit only slightly.

Energy and commodities were the weakest sectors yesterday with a 4% loss while bonds accounted for the strongest performance and some tech names that took comfort from a drop in yields.

The admission by J. Powell that he was not on automatic pilot to fight inflation at the expense of growth reassured bond markets and curtailed tightening expectations beyond the midterm elections as traders also paid a careful ear to B. Dudley and N. Roubini whose projections are for a hard landing (and a policy reversal next year). Former New York Fed President Bill Dudley (OPED here) said that a recession is “inevitable” within the next 12 to 18 months while

N. Roubini said he expects a hard landing/stagflation outcome (based on retail sales, consumer confidence, real estate dynamics and industrial production that are all decelerating sharply) as well.

R. Dalio was the third prominent character voicing his concerns yesterday in a Linked in post saying that reducing inflation will come at a great cost: Stagflation. “There isn’t anything that the Fed can do to fight inflation without creating economic weakness,” Dalio wrote in his conclusion as he also reminded the strength of the paradigm shift in the Changing World Order….

Our own view is that Fed will pivot before next year as deteriorating market and liquidity conditions, commensurate with the prospect of a hard landing will make it necessary sooner rather than later. The latest estimate of the Atlanta GDP nowcaster of the economy is already pointing at a 0% growth rate in Q2 2022 and various estimates of market stress are also turning red with real estate dynamics probably among the most worrisome after mortgage rates essentially doubled to 6% which also led JPMorgan yesterday to announce they were laying off potentially up to 1’000 mortgage originators to accommodate this new situation.

At the start of this year’s BRICS summit, Chinese President XI slammed sanctions for “weaponizing” the world economy. “Politicizing, instrumentalizing and weaponizing the world economy using a dominant position in the global financial system to want to impose sanctions would only hurt others as well as hurting oneself”, he said.

President Biden in dire need of an inflation relief said he was considering lifting some tariffs imposed on Beijing.


S&P500 dropped -0,2% (-21,2% YTD) while the Nasdaq100 dropped -0,1% (-29,5% YTD). The US small cap index dropped -0,2% (-24,6% YTD).

CBOE Volatility Index dropped -4,1% (68,1% YTD) to 28,95.

The Eurostoxx50 dropped -0,8% (-17,5%), underperforming the S&P500 by -0,6%.

Diversified EM equities (VWO) dropped -1,7% (-16,9%), underperforming the S&P500 by -1,5%.

The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,1% (8,5% YTD) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,2% (-3,7% YTD).

BRLUSD sold off by -2,7% (7,2%). RUBUSD rallied 6,6% (32,8%). INRUSD dropped -0,4% (-4,7%). CNYUSD dropped -0,1% (-5,3%). ZARUSD gained 0,4% (-0,2%). MXNUSD gained 1,8% (2,2%).

EURUSD gained 0,2% (-7,1%). EURCHF dropped -0,5% (-2,1%). EURJPY rallied 2,3% (9,6%). EURGBP gained 0,9% (2,5%).

Bloc3 below…

10Y US Treasury yield dropped -11bps (165bps) to 3,15%, with the 10/2 spread at 9 bps (-0,99).

10Y Bund yield dropped -7bps (182bps) to 1,64%. 10Y Italian BTP yield dropped -7bps (237bps) to 3,55%, matching Bunds.

US Investment Grade Average OAS dropped -2bps (62bps) to 1,62%. US High Yield (HY) Average Spread over Treasuries dropped -22bps (238bps) to 5,21%.US High Yield (HY) Caa Average Spread over Treasuries rose 30bps (411bps) to 9,60%. USD Repo Govt GC ON closed at 1,445% while the US Federal Funds Effective Rate stood at 1,58%.

XAUUSD dropped -0,7% (0,2%) while Silver dropped -0,6% (-8,6%). Major Gold Mines (GDX) dropped -1,4% (-6,1%). Bitcoin dropped -0,4% (-56,0%).

Goldman Sachs Commodity Index dropped -1,8% (42,8%). WTI Crude sold off by -11,4% (37,5%, Z-score -2,4). COPPER (CPER) sold off by -2,3% (-12,5%, Z-score -2,1).

Overnight in Asia…

  • S&P future -12 points; Hong Kong +1%; Nikkei unch.; China +0.4%

  • US futures wavered this morning while Asia was mostly flat to higher.

  • Crude oil dropped 3% while Treasuries were mostly stable overnight.


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Marc Bentin serves as Economic Advisor to Blue Lotus Management,

a specialist multi-manager investment firm, which seeks to provide investors a compelling alternative to the traditional 60/40 equity and bond portfolio by targeting higher returns without amplifying equity risks.

BentinPartner GmbH is Advisor to the Phi Funds AIF, an umbrella Alternative Investment Fund registered and regulated in Lichtenstein, specializing in the management of Funds focused on physical precious metals.


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