Bond Yields Spike Again: Brace For Bigger Shock | Peter Boockvar

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David Lin (1:00)

The 10-year treasury yield has climbed back above 5% just days after October's consumer prices came in hotter than expected. Traders now price a December rate hike as a near certainty, but how many hikes are left in this tightening cycle and how far can interest rates climb? We're going to get an outlook on yields, inflation, and what happens next to the AI trade after Nvidia CEO Jensen Huang just resigned after a series of scandals with affairs that he's been revealed to have. Right now, on Kalshi, traders are predicting that there's an 86% chance that there will be a 25 basis point hike in December. But Governor Christopher Waller said that a 50 basis point hike should be considered if the inflation number for October is hotter than expected, which is exactly what happened. There's a 12% chance of that happening on Kalshi, but if you agree with those odds, a $50 trade could yield a payout of $392.41 cents if you're correct and we do get a 50 basis point hike in December.

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Kalshi is CFTC approved and available in all 50 states, including California and Texas. Peter Boockvar joins us now. He's a chief investment officer of One Point BFG Wealth Partners and the author of The Book Report. Welcome back to the show, Peter. Good to see you.

Peter Boockvar (2:34)

Good to see you, David.

David Lin (2:35)

Peter, let's start with the bond market. The 10-year yield has been ripping higher. Importantly, I've noticed that I and many other people have noticed that the 10 years no longer following oil. Now whether or not it's followed in the first place is up to debate. Everything's, I guess, 2020 in hindsight. But I will pull up a chart of the 10-year and just have you comment on what exactly is driving it up. Because a couple of months ago, there was at least a narrative to write in the press.

People were writing that bonds were just an oil story. It doesn't seem like that anymore as the oil price has been falling in recent days while the 10-year has been soaring.

Peter Boockvar (3:14)

Well, I think the bond story has been in all of the above. I think it's been inflation and oil prices. I think it's been worries about debts and deficits. I think it's overloaded with supply from hyperscalers and other financing needs in terms of building out the AI ecosystem on top of the demands for governments to sell their own bonds. I think it's a combination of those factors. Now, when we got to 530 in the 10 year, sentiment was really bearish. Yet the front page of The Economist that said, well, bonds blow up even though many bonds have already blown up.

So we were probably due for a contra trend rally and we got it. And the 10 year yield went back to what about 485 So now we're about to about 505 maybe.

I think for now, we've seen probably a short term peaking yields. But I think overall, rates are going to be trending higher. Certainly, the shock this week was the CPI number that sent the 10 year above 5 percent, in addition to a very sharp rise in short rates. So it's a Fed that's still in the game. The ECB is probably going to hike in December. The BOJ is going to hike in December. The BOE is probably going to hike in December. So just when you thought that maybe we would see a clear when it comes to inflation and rates, we were reminded that we're not there yet, and that we still have very persistent inflation. We still have, like I said, all these financing needs and interest rates are going to stay elevated for a period of time and I think they're still going to trend upwards in the coming years.