6-month ahead, a medium horizon: Fixed Income
We recently added 6-month ahead, a medium horizon. In Part 1, we talked about US equity. In this post, we look at US treasury nominal and real interest rate, and some currency.
If one searches for “DGS5;DFII5”, for US 5-year nominal and real yield rate respectively,
the commonly causally predictive factors for their values 6-months out, as of Mon 7 Aug are
CVS Health CVS (healthcare, pharmacy chain)
Nvidia Corp. NVDA (AI, semiconductor)
Expedia Group Inc. EXPE (consumer)
US 1-Year Treasury Yield Rate DGS1 (short-term interest rate)
American International Group AIG (insurance, holding bonds sensitive to long interest rate)
As the implied inflation rate is the difference between the nominal and real interest rate of the same term, we might conjecture that CVS and EXPE are related to the 5-year implied inflation rate. Let’s look at their historical price trajectory,
Both started climbing up from 2012, plateaued, then went even higher since the pandemic, and crashed some bit since 2022. How well does it correspond with everyday experience of the inflation rate?
The net prediction for the coming day are
DGS5 19% of models predict up (59% predict up, 40% predict down)
DFII5 30% of models predict up (65% predict up, 35% predict down)
It may be reasonable to read that, the 5-year implied inflation, being the difference of the two, is anticipated to go down a bit from here, or at least be pressured.
For those interested, one’s welcome to search for the 10-Year US nominal and real yield rates “DGS10; DFII10” and see what we could make of the results.
For the farthest 30-Year US nominal yield rate “DGS30”, the causally predictive factors for its value 6-month out, as of Mon 7 Aug, are computed to be
Citigroup Inc C (financial)
Ford Motor Company F (industrial)
Sirius XM Holdings Inc SIRI (media, internet radio)
Greenidge Generation Holdings Inc GREE (clean energy, cryptocurrency)
Micron Technology Inc MU (industrial, semiconductor)
Why did Sirius XM SIRI figure here? SIRI jumped on 20 Jul in a GameStop GME-style short squeeze. Greenidge Generation GREE claims to generate green energy then mines cryptocurrency on it. It is down since listing and running negative earnings. Micron Technology MU is running negative earnings. All rose though in the last months. The nature of these liquidity-fuelled stocks may raise some concerns, according to the computed results.
(For the moment being, tsterm.com is only processing price data, which may expand to earnings, tweets, etc. going forward.)
Currencies, especially DM (developed market) ones, are generally range-bounded. If one manages them with a long horizon’s view and trades only a little everyday, usually the final return wouldn’t be significant, as the bulk of position will vary little. However, let’s look at USDJPY, a currency pair that links the west up with the east.
The causally predictive factors for its value 6-months out, as of Mon 7 Aug, are
Citigroup Inc (financial)
3-month US bill yield rate DTB3 (US short rate, in close relation to Fed Funds Rate)
O’Reilly Automotive ORLY (consumer, car parts, linked to inflation)
Analog Devices ADI (industrial, semiconductor)
Nvidia NVDA (AI, semiconductor)
The net prediction for coming day is
USDJPY 80% of models predict up (ie USD appreciate vs JPY)