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The real story ahead of the PPI and Retail Sales reports is Treasury rates, which continue to rise despite yesterday’s soft CPI report. Tomorrow morning, we’ll also hear from Powell as part of the Fed’s framework review—all while the 10-year rate breaches 4.5% and the 30-year approaches 5%.
A 100% extension of the 30-year breakout, which appears to be a bull flag, suggests the 30-year rate could rise to 5.5%. A lot would have to go right—or rather, wrong—for that to happen, such as a hot PPI or possibly strong import prices on Friday. I don’t know, but if you believe in technical analysis, that looks like a clear bull flag to me.
I’m not sure what happens this time, but in some ways, the bond market now knows it can push Trump and Bessent around—and that’s precisely what it’s about to do. I don’t see how this could be good for the stock market. Maybe it’s about tariffs, maybe it’s about the debt, maybe it’s about the next tax bill, whatever it is, we will soon find out.
There are two reasons why rates are rising: inflation expectations, and not the short-term kind—we’re talking about the 10-year kind. The 10-year inflation swap rose to 2.46% today, and while that’s still below the highs, if you’re into technical analysis, maybe we’re seeing an inverse head and shoulders pattern forming. Maybe. It’s too soon to know for sure.
The second reason is that investors are demanding more compensation for the risk of holding bonds, as the term premium continues to tick higher.
We also saw the VVIX rise for a second consecutive day, and the VIX increased today as well.
HY spreads also widened today—not a huge move, but in line with the rise in the VIX. Interestingly, with the S&P 500 finishing higher on the day, there was a mild divergence.
It was not a good day for the HGX, and it doesn’t look promising. However, the HGX can sometimes be a strong leading indicator for the S&P 500, so it’s worth keeping an eye on.
-Mike
Terms By ChatGPT
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PPI (Producer Price Index) – A measure of the average change over time in the selling prices received by domestic producers for their output. It is a key indicator of inflation.
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CPI (Consumer Price Index) – A measure that examines the weighted average of prices of a basket of consumer goods and services. It’s the most common indicator of inflation at the consumer level.
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Treasury rates – Interest rates on U.S. government debt, such as the 10-year or 30-year Treasury bonds, which influence borrowing costs across the economy.
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10-year inflation swap – A derivative used to exchange fixed interest rate payments for payments linked to a 10-year inflation rate. It’s a market-based measure of inflation expectations.
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VVIX – The volatility of the VIX (Volatility Index), essentially measuring expected volatility of volatility. Often used to assess market stress or fear levels.
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VIX – Also known as the “fear gauge,” it measures market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
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HY spreads (High Yield spreads) – The difference in yield between high-yield (junk) bonds and safer government or investment-grade bonds. A widening spread suggests increased risk aversion.
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Term premium – The extra yield that investors require to commit to holding a longer-term bond instead of a series of shorter-term instruments.
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HGX (Philadelphia Housing Sector Index) – An index that tracks the performance of U.S. housing sector companies, such as homebuilders. Often viewed as a leading economic indicator.
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Inverse head and shoulders – A technical analysis pattern that signals a potential reversal from a downtrend to an uptrend.
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Mott Capital's Market Chronicles September 12, 2025 2:14 PM