Visser says rising bond yields are noise for stocks
Jordi Visser of 22V Research said rising Treasury yields may be “noise” for stocks, arguing bond volatility, credit spreads and inflation expectations do not signal a bond crisis.
The 30-year Treasury yield closed Friday at 5.246%, a few basis points below the 19-year high it set in August. Traders are pricing roughly 60% odds that the Federal Reserve raises rates at its Sept. 15-16 meeting, after August payrolls came in at 162,000 against a consensus near 55,000. Into that setup, Jordi Visser of 22V Research said in a YouTube video over the weekend that the bond panic dominating financial social media is just “noise.” He said his view does not depend on yields falling and that they could go higher, with a move to 5.5% on the 10-year possible.
He said the issue is what the rest of the market is doing while the yield chart climbs and which variable actually sets the earnings power of the companies driving the index. Bond volatility is subdued. The ICE BofA MOVE index, which measures how much price movement options traders expect in Treasury futures, sat near 73 as of Friday, far below the readings seen in 2020 and 2023. He said a bond market pricing a crisis does not price its own volatility that cheaply.
Credit is quieter still. The option-adjusted The ICE BofA US High Yield Index spread — the extra yield investors demand to hold junk-rated corporate debt instead of Treasuries — closed at 2.65 percentage points on Sept. 3. Visser said that is among the tightest levels on record, and that a market bracing for a debt crisis would not price risk that way.
Inflation expectations are showing a similar pattern. Swaps priced one-, two-, five- and ten-year horizons are all clustered near 2.5%, almost exactly on top of core consumer inflation, while the daily Truflation reading has been falling. The damage is also smaller than the yield chart suggests. Visser said long-dated Treasuries — tracked by the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) — are down roughly 5%, versus 32% in 2022, when the bond move actually mattered.
Corporate America still looks stronger than rates appear to imply. Second-quarter S&P 500 earnings rose 50.7% year over year, or roughly 25% excluding mark-to-market gains. Analysts currently expect growth of 23.6% in the third quarter and 27.9% in the fourth. Forward earnings reached a record $401.75 per share last week.
This is why rising yields have not yet produced the equity damage some investors expected. Visser said interest rates are “a rounding error on inference P&L.” He said a 200 basis point rise in the 10-year yield, from 5% to 7%, would cost the large model developers about one percentage point of margin. He also said a 10% cut in model pricing would cost three. Visser said the three companies that set the outcome are Anthropic, OpenAI and Nvidia Corp.
(NASDAQ: NVDA), and that the risk to watch is price compression on models, which is not happening. Nvidia closed Friday at $230.36, within 2.6% of its 52-week high. Dell Technologies Inc. (NYSE: DELL) jumped 9% after telling investors AI server revenue should triple, up from a doubling six months ago.
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