Morning Notes — Bond Yield Backup

Fed: OIS forwards are pricing in an even probability (50/50) for a 50bp or 75bp hike at the 9/21 Fed meeting.  Powell gives his annual Jackson Hole address next Friday (8/26), but we shouldn’t expect much guidance given the August Jobs Report due on 9/2 and CPI on 9/13.

Tech: Higher nominal bond yields weigh on growth multiples, particularly multiples in expensive Tech.  While nominal yields are a swing factor for the relative performance of Tech, the more important driver is real bond yields.  Tech multiples and real yields have a strong negative correlation.  The broad outperformance in Tech during ’20-21 was largely based on multiple expansion as 10-year real yields crossed into negative territory on 3/23/20 with Tech outperforming all the way to the bottom of -119bp on 8/3/21.  Ten-year real yields (10-year nominal yields – 10 year inflation breakeven yields) are now at +40bp.  We’d expect notable underperformance from Tech at levels above +50bp, and some outperformance at levels below +11bp