Treasury Yields Strike Again

Yesterday, yields on the 10-year note reached as high as 5.021% but ultimately fell to around 4.85% by close. [The Daily Peel... ]() October 24, 2023 | Peel #570 In this issue of the Peel: - Yesterday, yields on the 10-year note reached as high as 5.021% but ultimately fell to around 4.85% by close. - EngageSmart and Digital Assets had an absolute day for themselves, whereas FMC Corp and Okta Inc struggled to remain green. - Chevron yesterday announced plans to buy Hess Corp for $53bn in an all-stock deal, coming just two weeks after the ExxonMobil/Pioneer deal. Market Snapshot Happy Tuesday, apes. The sneaky-least favorite day of the week is here, and while we’re already upset about it, we still gotta make the most of it. As long as you weren’t short digital currencies, you’ll (surprisingly) be fine. Equity markets happened to be alright yesterday. The Nasdaq was the only major U.S. index to gain on the day, mostly thanks to Nvidia and other big dawgs. The Russell 2k took the worst of it, losing 0.86% as just about any gains were reserved exclusively for the largest among them, meaning the magnificent seven are still at it just in time for big tech earnings this week. Treasury yields moved more similarly to the Russell than the others as bond buying came in with big support at the 5% level. The Dollar moved similarly in the meantime, falling as low as 105.5. Let’s get into it. The Ultimate Program to Land a 6-figure Job in High Finance [image]() With over 17 years of experience, 900k+ members, and an insane network, WSO has cracked the code to making 6 figures right out of undergrad. We’ve helped over 1k students from all backgrounds break into these careers. WSO Academy is a 12-week program (with many lifetime benefits) that puts everything we’ve learned on a silver platter for you—to dramatically improve your odds at landing a high finance offer. The waitlist for WSO Academy just opened again, and we’re only accepting 20 students into the next cohort. So if you’re serious about breaking into high finance, you need to sign up for the waitlist asap because we are opening applications next week (people on the waitlist will be the first to know). [Get on the waitlist -> Applications opening next week and capped at 300]() (so we can review all of them carefully). No reason for you to be sleeping on this. Macro Monkey Say Rates Keep Raging Sound the alarms, ring the bells, and get ready to roll out the cannons (especially on that last one). That’s right, apes, the 10-year U.S. treasury yield hit 5% again. Sure, it was only for about two seconds, and it wasn’t during the main U.S. session, but Monday morning saw the once-in-sixteen-years event turn into twice. Yields on the 10-year note reached as high as 5.021% but ultimately fell to around 4.85% by close. In short, this is pretty crazy, and we could end the story right here, but where’s the fun in that? Let’s discuss the reasons and implications and speculate wildly in the meantime. If nothing else, the quick pump (not what you do in the gym) was a stark reminder of where we are. Fortunately for borrowers like wannabe homebuyers, there has so far been an apparent resilient bid for treasuries right around the 5% level, probably for psychological reasons (thanks Richard Thaler), but the “higher for longer” narrative might have a market-enforced cap. Unfortunately for us “dumb money” ape retail traders, bond yields generally have an inverse correlation to stock prices. Luckily, yesterday was fairly mixed across U.S. equity markets, but the decline in equities over the last few months as bond yields soared hasn’t exactly been fun. "... bond yields generally have an inverse correlation to stock prices." And soar they did. Just in the past roughly six months or so, rates are coming off of troughs as low as 3.30%. The 10-year gaining 170bps in 6 months is like if GameStop smoked m*th, to say the least. Even legendary hedge fund manager Bill Ackman is freaking out. In August, Ackman stirred the pot when his firm, Pershing Square, came out with a short against U.S. 30-year treasuries. Knowing that prices move inversely to yields in the “smart money” world of fixed income and that the 30-year yield moved a full basis point higher in that time period, it’s safe to say he made a bag. Yesterday, Ackman disclosed that the firm is covering that position with the Halloween-scary level justification that “there is too much risk in the world to remain short bonds. "... no one would be happier about this besides home buyers." Basically, it’s a bet that fears around global conflict and the other myriad of ever-present disruptions keeping us up at night will drive global investors to seek safety in U.S. treasuries… because being the global safe haven has its perks. Naturally, no one would be happier about this besides home buyers. But in case you thought that was going to be followed by good news, check out this [WSJ headline](=) and probably just go back to bed. Monthly mortgage payments have never been higher compared to their rental counterparts than they are right now since records began back in 1996. Once again, we can thank JPow’s rate hikes, but extreme events like those rate hikes probably should trigger extreme reactions exactly like this, right? Regardless, the only thing I can say is that my portfolio could take some notes on recent moves of the 10-year and start moving higher. What a shame. What's Ripe EngageSmart (ESMT) ↑ 11.88% ↑ - With a divorce rate of around 50%, a lot of people in the U.S. question getting married, but to this company, getting engaged is nothing but smart. Especially when it comes to PE deals. - Not only does EngageSmart’s name promote engagement, but they took it a step further in yesterday’s deal announced to get engaged with and acquired by Vista Equity partners. - A provider of customer engagement, payment, and other B2B software programs, EngageSmart will be acquired by Vista at a $4bn price tag, a ~20% premium to Friday’s close. - You arbitrageurs out there do still have a chance to make a quick buck, however, with yesterday’s market cap closing at ~3.8bn. Maybe those six shares we buy could earn us enough for an entire beer this weekend! Digital Assets (BTC, ETH, DOT) ↑ 11.1% ↑ (last 24hrs) - Someone check on Warren Buffett because he might officially need to have fun staying poor once again—BTC prices are on the rise. - The big guy alone has soared well over 11% in just the last 24 hours. Much of the move is pouring out from the wave of excitement around BTC ETFs set to launch from the world’s largest asset managers. BlackRock officially attained a CUSIP designation for their spot BTC product, taking a step closer to the finish line. - And maybe most importantly, October is Uptober in the digital currency world, and we’re not sure if it’s funny or stupid, but we’ll let you decide and be haters anyway. Despite the senselessness, the 10th month does seem to get the Twitter (X?) armies going. - The largest digital currency was approaching $35k by the end of the day, while ETH had surged 6.7% to >$1,800. I’m just glad to see there are two sides to this market again. What's Rotten FMC Corp (FMC) ↓ 13.30% ↓ - FMK is a fun, slightly overly-suggestive game to play in your college dorm room. FMC is a stock you do not want in your portfolio, or at least, you definitely didn’t yesterday. - Agricultural and chemical giant FMC Corp committed the cardinal sin of public markets yesterday: they were too honest with investors. The company came out and warned that earnings for this quarter are going to be way less than management had previously guided for, a nice spooky surprise. - Earnings guidance was reduced, but the firm kept its upper target, implying a massive range of $0.90 to $1.32/sh in earnings for its latest quarter. Revenue of $1.2bn to $1.3bn is still in line with previous targets, but that band-aid did nothing to cover this bullet hole. - With revenues “not expected to improve in the near term” and another exciting commentary, management made sure to dilute the effects of expected underperformance across a few quarters and/or years. Guess at least we know the F in both FMK and FMC stands for the same thing, but gotta add an “ed” to the end for FMC. Okta Inc (OKTA) ↓ 8.14% ↓ - Oof. If this isn’t the biggest possible hit to this brand’s rep, I don’t know what is. It’d be like if McDonald's started claiming their Big Macs are healthy for you. - Okta, an identity and access security management company, has been hacked. Essentially, Okta seeks to manage and ensure security around user access to mobile and digital applications… it’s a cybersecurity and identity management company… and their internal systems got hacked. - The irony is almost poetic. Shares obviously got dumped on the news, and if you need an explanation for why, stop reading this and go grab Cat in the Hat. The hack managed to hit about 1% of customers, according to the firm, mostly concentrated in recently uploaded documents related to support cases. Thought Banana Bigger Oil We all know that little siblings are known to mimic the activities of their older counterparts. You play baseball, and they play baseball. You go to college, and they (at least try to) go to college. You swear at Mom, and they (very unfortunately) do too. Or, in this case, if you spend tens of billions of dollars buying oil companies, they spend tens of billions of dollars buying oil companies. Just ask the Rockefellers. But, in this case, we’re not talking about the Rockefeller family, but rather, two of their progeny: ExxonMobil and Chevron. Both originated as part of the Standard Oil family and despite being forcefully disowned back in 1911, the family ties are still clear. "Chevron yesterday announced plans to buy Hess Corp for $53bn in an all-stock deal ..." Chevron yesterday announced plans to buy Hess Corp for $53bn in an all-stock deal, coming just two weeks (but feels more like two seconds) after ExxonMobil announced a $60bn all-stock deal to purchase Pioneer Natural Resources. Big oil is only getting bigger, and sources say Greta Thunberg is in absolute shambles after reading the news. Years of underinvestment in production capacity following the shale boom in the U.S. has created an environment where large acquisitions like these are the most efficient way to achieve competitive scale. With Chevron already seated in the #2 Big Oil spot in the U.S.—just behind Exxon—they likely sped up the process of finding a target in response to the Exxon/Pioneer news. The deal price implies just a 5% premium, but investors clearly aren’t seeing the terms as accretive yet, with Chevron’s stock off 3.7% on the day. Not that that’s unusual for any acquirer this early, but we’ll take any chance we can to make investors cry, of course. In addition to scale, acquiring Hess will also give Chevron a large new presence in the nascent exploration and production region of Guyana. "... sources say Greta Thunberg is in absolute shambles ..." Everyone knows that humanity is moving to clean energy, but it all depends on your timeframe. One hundred years from now, you might be hard-pressed to find consumer goods and services reliant on fossil fuels, but for the next 10 to 20 years, experts say that oil will still be the big daddy of human energy consumption. So, until then, Chevron has no interest in losing its position as one of the world’s top polluters. Shoutout to all those dead T-Rexs powering our cars—they’ve been putting in work for literally millions of years, and we can’t thank them enough. And neither can Chevron, this time with $53bn more thanking to do. The big question: Will this acquisition ultimately benefit shareholders in the long run? When will oil and fossil fuels be displaced, if at all? Are you buying Chevron after this information? Banana Brain Teaser Yesterday — Xavier was going to the casino. His friend, Rex, gave him £100. He asked him to place it on Red 13 at the roulette table. How much would Rex win if he won his bet? Answer He would be unable to place his bet. There is no such thing as Red 13. Thirteen is always Black at the Roulette table. Today — The more you make of me, the more you leave behind. What am I? Shoot us your guesses at vyomesh@wallstreetoasis.com Wise Investor Says “People who know what they’re talking about don’t need PowerPoint” — Steve Jobs How would you rate today’s Peel? [All the bananas](=) [Decent]() [Rotten AF](=) Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](=). [ADVERTISE](=) // [WSO ALPHA]() // [COURSES]( // [LEGAL]( Don't want The Daily Peel? [Unsubscribe here](. Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. 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