Morning Notes — Real Yields Intraday Break Out

Valuation is a dull instrument for timing the entry and exit of investments.  Valuation requires a catalyst to make it matter. In this case, the market is pricing in the end of the pandemic.  Increased mobility in the future makes the cyclical recovery more sustainable, which means higher nominal bond yields/curve steepening.  Increased mobility in the future may also lead to an easing in supply chain bottlenecks and some cooling of inflation.  Higher nominal yields and lower inflation expectations = higher real yields.  Ten year real yields are higher again today to -0.89, which is above our predetermined trigger of -0.92.  The close is all that matters, but sustained levels above -0.92 will likely accelerate the rotation out of Tech and SaaS in particular.  The last few days has brought the average SaaS multiple to 11.7x sales, which is getting closer to pre-pandemic levels of ~10x.  Unfortunately, pre-pandemic levels may not be the right comparison in a post-pandemic world.