Morning Notes — Real Yields

Bond yields: The 10-year Treasury yield is down -11bp to 2.674% and ready to test strong technical support at ~2.64%.  Expect that level to hold with the benchmark yield likely to stay in a narrow range between 2.65% and 2.95% into the September Fed meeting.

Tech: Lower 10-year nominal yields (down -11bp) and relatively firm inflation expectations take 10-year real yields down to +24bp from the mid-June peak of +89bp.  Lower real yields support growth multiples, with levels below +11bp likely to accelerate a rotation back to Tech, specifically software. Ten-year real yields below -12bp should make the trend glaring/obvious.

SPX: S&P 500 (SPX) resistance stays in the 4100-4150 range.  Any breakout will likely require a change in macro fundamentals, specifically a lower expected terminal Fed funds rate, which still sits just under 3.50%. Yesterday’s 75bp rate hike took Fed funds to 2.50%, which lines up with the so-called neutral rate.  Powell’s change in tone yesterday is an acknowledgement that further rate hikes will likely restrict growth going forward.  Markets will take cues from terminal Fed expectations, and levels below 3% likely require a weak July Jobs report (8/5) and lower July CPI print (8/10).