David Tepper remains bullish on stocks and the reason for his optimism is not only because of the Fed’s $120 billion a month asset purchases and near interest rate policy.
The crux of David Tepper remains bullish on stocks view is based on the world’s largest buyer of US treasury bonds, Japan returning as an enthusiastic buyer of U.S. government bonds. Japan is expected to soak up the supply of US treasuries to, stabilizing a run-up in yields, which has rattled stock investors, particularly growth stock investors.
“Japan is expected to soak up the supply of US treasuries”
WEALTH TRAINING COMPANY
What is the link between a renewed interest in US treasuries and David Tepper remains bullish on stock view?
So, a shift in the demand curve for US treasury bonds, caused by higher yields, sends treasury bond prices higher and that keeps a cap on rising yields, bearing in mind the inverse relationship between rising bond prices and their corresponding yields. When bond prices rise their yield falls and vice versa.
The US Treasury 10-year note is also the benchmark that guides other interest rates. As yields on the 10-year Treasury notes rise, so do the interest rates on other types of debt instruments like fixed-rate mortgages. So rising treasury bonds yields increase borrowing costs, which is a headwind on growth-oriented companies.
Moreover, rising yields have already triggered a sell-off in stocks recently.
“rising treasury bonds yields increase borrowing costs”
WEALTH TRAINING COMPANY
David Tepper remains bullish on stocks because the treasury yields signal a buying opportunity for Japanese investors
“Technically, the 10-year U.S. yield is looking attractive and we are shifting part of our investment in Australia into Treasuries,” said Akira Takei, a global fixed-income money manager at Asset Management One in Tokyo. “Japanese investors may think back later and say it was good they bought Treasuries now” he added.
“David Tepper remains bullish on stocks because he believes the ten-year yields curve has peaked” – Wealth Training Company
Japan’s Prime Minister will be the first foreign leader to visit the US under Biden, an administration official said. So, when Jamie Dimon and Rey Dalio said recently, that they wouldn’t touch the ten-year treasuries with a 10-foot pole that is not the case when the buyer is a country where there are other dynamics, geopolitical factors, at play. China’s growing clout in the pacific region is rattling Japan and the deal on the table could be Japan’s willingness to buy US paper, motivated by national security reasons, in exchange for more US security presence (more gunboat) in the pacific. Geopolitics is also another factor influencing the demand for US treasury bonds and the exchange value of the US dollar.
David Tepper remains bullish on stocks because he believes the ten-year yields curve has peaked
Meanwhile, the rotation in the stock market grew more intense, particularly in tech-heavy stocks
But David Tepper believes that what we are seeing is healthy profit-taking. Perhaps he is right. Time will tell.