Daily Commentary

MarketMinder’s View: This piece argues a string of supposedly weak Treasury bond auctions means a pending increase in new issues risks meeting weak investor demand, sending long rates higher and hitting the economy. While we appreciate the focus on supply and demand as the primary drivers of prices—a simple, true fact that so many overlook—we think the argument is based on a false premise. That is: The “weak auctions” it refers to amounted to a tiny downtick in bid-to-cover ratios earlier this month. Per the Treasury’s Treasury Direct website, the bid-to-cover for 10-year Treasurys at March’s auction was 2.51, and for 30-year Treasurys it was 2.47. That means the Treasury received bids worth about two and a half times the amount on offer for both maturities. In April, bid-to-covers slipped just a bit, to 2.34 for the 10-year and 2.37 for the 30. That strikes us as still pretty healthy demand, far more than twice the amount available. And the fact that these are on par with bid-to-cover ratios throughout high-rate 2022 suggests to us demand isn’t as fickle as this piece implies. Now, we do think the Treasury missed an opportunity during the low-rate years to push out the weighted-average maturity of its debt stock, and refinancing is probably more sensitive to short-term interest rate moves than it otherwise could have been. But this is a long-term structural factor, not a cyclical one, and it was too well telegraphed and slow moving to be a major influence on bond market returns. Lastly, as the article notes, demand is broad and global thanks to the breadth and depth of US capital markets.

MarketMinder’s View: Financial literacy is a long-running problem in America and abroad, as it often takes people too long to learn vital concepts like compound growth, the relationship between risk and returns and portfolio diversification. Yet a new Intuit survey found that most US high schoolers are already interested: “Intuit's Financial Education survey found that 85% of U.S. high school students said they're interested in learning about financial topics at school and that 95% of those who currently receive a financial curriculum find it helpful.” (Speaking of which, MarketMinder doesn’t make individual security recommendations, and we highlight this for the survey and broader theme only.) Respondents struggled with financial terminology but expressed desire to learn how to become wealthy, save money and avoid debt. Excellent! Problem is, most students lack access to this curriculum, often turning to social media platforms that can offer inaccurate or fraudulent advice, and they bemoan the difficulty in discerning what is true and false on these platforms. We think this underscores the importance of establishing financial education with your family and loved ones—early and often. This can mean sharing literature, sitting down for a casual discussion or even reading MarketMinder articles together. We encourage you to make it fun: explaining the long-term impacts of saving and compound growth can be eye-opening for kids. For more, see Ken Liu’s column, “Personal Finance: It Isn't an Elective Anymore.”

MarketMinder’s View: Despite slowing from February’s 0.9% m/m jump, US retail sales beat analysts’ expectations in March, rising 0.7% m/m. Digging in, growth was mixed: Rising gas prices inflated the total, and while online and general merchandise store sales were strong, autos, clothing, sporting goods/hobby, furniture and electronics store sales fell. So there is perhaps a whiff of rising gas prices detracting from discretionary demand, but one month doesn’t make a trend. We point all this out because the article does a surface-level comparison between month-over-month retail sales and CPI to argue sales rose on an inflation-adjusted basis, but that math doesn’t really work because you would have to deflate each category according to its own inflation rate. Anyway, don’t get us wrong, we are bullish and think US economic fundamentals are bright. But that is because businesses are increasingly moving from defense to offense, and business investment is the main economic swing factor. The article casts consumer spending as the be-all-end-all, but most consumer spending goes to services and essential items (food, clothing, gas, housing, utilities, healthcare), and it doesn’t fluctuate much with the business cycle.