While the back up in interest rates over the last few weeks has been heralded by those with a bias for these things as some indication of growth expectations improving – confirming the equity exuberance they stand on as sensible; it appears, if one actually takes a look a little deeper into market movements, that in fact this is ‘all’ about ‘Taper’ concerns and nothing to do with growth. The driver of this reasoning is straightforward. If the move higher in rates were really about perceived improvement in the growth outlook, we would expect credit markets to rally – as they have during all prior periods of rate spikes. This time is different as they sold off together. Simply put, this is not a growth-driven rate reversion, it is short-term fears (and JGB VaR shock driven concerns) of a Fed worried about bubbles and taking its foot off the throttle modestly.
The past three weeks have seen intraday spread moves correlate extremely closely with rates – suggesting Fed Taper concerns – not growth at all – as the flow may slow.
Chart: Barclays
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It"s Not Growth "Hopes" That Has Backed Up Rates
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