Finance

The american economy is supposed to be slowing down by now, and that is supposed to be translating into a weaker labour market. But according to figures released on October 6th, the country added 336,000 jobs in September, nearly twice as many as forecast and the most since January (see chart). It is the latest evidence that, despite an aggressive series of interest-rate increases by the Federal Reserve over the past 18 months, American growth remains resilient. Instead of the “hard-landing” forecasts that predicted a recession, and were so common earlier this year, America looks to be heading for something more like a “no-landing” scenario.image: The EconomistUnderlying the data release is a vexing question, about whether the labour-market resilience is excessive, and will therefore place upward pressure on inflation. If so, Fed policymakers will be tempted to resume their interest-rate rises before long. In recent weeks financial markets have moved sharply to price in the possibility that rates will remain elevated for an extended period—or, to use the terminology now favoured, stay “higher for longer”—owing to the Fed’s protracted fight against inflation. Yields on long-term Treasury bonds have soared since August to around 4.8%, their highest in more than 15 years, which represents a swift tightening of financial conditions.Initial reactions to the strong jobs data fell into the good-news-is-bad-news mould. In the minutes after the release, yields on Treasuries jumped yet higher, reflecting bets that the Fed may raise rates again as soon as its next meeting, scheduled for the end of this month. That, in turn, weighed on stockmarkets globally.However, as analysts and investors digested the numbers, worries about the outlook for rates gave way to optimism about the broader economy, because the employment report also offered pretty positive signals about inflation. Average hourly earnings—a proxy for wage growth—were up 0.2% month-on-month in September, the slowest monthly rise since early 2022. In year-on-year terms, earnings growth of 4.2% dipped to its weakest since mid-2021. Alongside a recent deceleration in inflation, an ebbing of wage pressures will reassure the Fed that prices are trending in the desired direction.A separate batch of labour-market data published at the same time—based on a survey of households rather than businesses—also painted a more restrained picture. It showed that just 86,000 jobs were added last month. With 90,000 people entering the workforce at the same time, the unemployment rate remained perfectly steady at 3.8%, which is low by historical standards but a touch higher than a few months ago. All this suggests that the labour market has gone from being ultra-tight to just moderately tight. Viewed in such a light, America’s economic resilience would appear to be impressive, not excessive. ■ More

The U.S. Labor Department is poised to issue a rule expected to crack down on investment advice relative to rollovers from 401(k) plans to individual retirement accounts.
The Obama administration tried to similarly raise protections for retirement savers. Its regulation was ultimately killed in court.
Investors rolled $618 billion to IRAs in 2020, according to IRS data. That sum doubled in a decade.

The U.S. Department of Labor building in Washington, D.C.
The Washington Post | The Washington Post | Getty Images

There’s a ‘tsunami’ of rollovers to IRAs

IRAs held about $11.5 trillion in 2022, almost double the $6.6 trillion in 401(k) plans, according to the Investment Company Institute. More than 4 in 10 American households — about 55 million of them — own IRAs, the group said.
The bulk of those IRA assets come from rollovers.

About 5.7 million Americans rolled a total $618 billion to IRAs in 2020 alone, according to IRS data. That’s more than double the $300 billion rolled over a decade earlier.
The figure is also seven times larger than the share of money contributed directly to IRAs. In 2020, 74% of new pre-tax IRAs (also known as “traditional” accounts) were opened just with rollovers, ICI said.

There’s a “tsunami of assets” moving from workplace plans to IRAs, Phyllis Borzi, who led the Labor Department’s Employee Benefits Security Administration during the Obama administration, said during a webcast last month.
While there are pros and cons to rolling money to an IRA, one potential drawback is that the accounts tend to come with higher fees than 401(k) plans. For example, investors who moved money to an IRA in 2018 would lose about $45.5 billion to fees over 25 years, according to Pew Research Center, a nonpartisan research group.
And most recommendations made by brokers, insurance agents and others to roll over money to an IRA aren’t subject to a so-called “fiduciary” standard of care — meaning investors may not be getting advice that’s in their best interests, Reish said.
This is what the Labor Department will likely tweak, attorneys said.

‘Game changer’: Rollover advice may be ‘fiduciary’

Borzi, the former head of EBSA, had spearheaded a sweeping Labor Department effort to rewrite “fiduciary” rules in the Obama era. Those rules aimed to clamp down on conflicts of interest among brokers and others who make investment recommendations to retirement savers.
However, the rule was killed in court.
Now, the Labor Department is trying again, though its rule likely won’t be as far-reaching, experts said.
It submitted a proposed rule — called “Conflict of Interest in Investment Advice” — to the Office of Management and Budget in September. The OMB has 90 days to review the rule, Borzi said, after which the Labor Department would issue its proposal publicly.

Based on recent legal clues, attorneys expect the Labor Department will seek to raise the bar on all rollover advice provided by the financial ecosystem.
“That’s a game changer,” said Andrew Oringer, a retirement law expert and partner at The Wagner Law Group.
Critics think a new rule would do harm, however.
Sen. Bill Cassidy, R-La., and Rep. Virginia Foxx, R-N.C., sent a letter to the Labor Department in August saying its efforts were “misguided” and risked creating confusion in the marketplace, unwarranted compliance expenses and instability for retirement plans, retirees and savers.
It may be two years or more before a final rule takes effect, due to the typical length of the regulatory process, Borzi said.

There are legal loopholes for rollovers

Here’s why a new rule would be a big deal.
There’s currently a hodgepodge of rules governing how advisors, brokers, insurance agents and others can give financial advice to retirement savers. Different actors are beholden to different rules, some looser than others.
The fiduciary protections for 401(k) investors are generally the highest known to law, attorneys said. They’re governed by the Employee Retirement Income Security Act of 1974.
That generally means investment advice must be given solely in investors’ best interests. Advisors must set aside their own self-interests, and can’t make recommendations to buy a fund, annuity or other investment that pays them a higher commission at the expense of an investor, for example.

It may not cause fewer rollovers, but it will almost certainly cause more thoughtful rollovers.

Fred Reish
partner at law firm Faegre Drinker Biddle & Reath

The singular focus on investors’ best interests “is an extremely significant difference” relative to other investor protections, Oringer said.
However, due to loopholes, rollover advice generally falls outside the purview of those protections, attorneys said.
But the Labor Department may close those loopholes and subject all rollovers to ERISA’s protections.
“All of a sudden, I’d have to care about your best interests when I try to get you to do that rollover,” Oringer said of financial firms and their agents. “That completely changes the way in which I have to behave.”
Among the other big changes: ERISA protections would give investors the right to sue someone in court for bad rollover advice, Reish said.
Currently, that private right of action generally doesn’t apply to investment advisors, brokerage firms, insurers, banks or trust companies — only their respective regulators (and not individual investors) can enforce their rules, Reish said. More

The U.K.’s Metro Bank will likely struggle to raise fresh capital to shore up its balance sheet, according to analysts, who outlined bleak prospects for the beleaguered bank.
Shares of the bank were briefly suspended from trading twice on Thursday after it confirmed it was looking to raise new capital.
Rival banks including HSBC, Lloyds Banking Group and NatWest Group are now being sounded out to buy around a £3 billion chunk of its mortgages, according to reports.

The U.K.’s embattled Metro Bank has launched talks to sell a third of its mortgage book in an urgent attempt to shore up its balance sheet.
Matthew Horwood | Getty Images News | Getty Images

LONDON — The U.K.’s Metro Bank will likely struggle to raise fresh capital to shore up its balance sheet, according to analysts, who outlined bleak prospects for the beleaguered bank.
A number of ratings agencies and investment banks have downgraded the bank’s stock following a turbulent 24 hours in which its shares were briefly suspended from trading twice after plunging more than 29% from Wednesday’s close.

Metro Bank reversed its losses Friday and was trading up around 34% at 12:55 p.m. London time.
The turmoil came amid reports that the embattled bank was seeking to raise up to £250 million ($305 million) in equity funding and £350 million of debt. Metro Bank confirmed in a statement early Thursday that it was considering “how best to enhance its capital resources.”
Late Thursday, reports emerged that the bank was in talks to sell a third of its mortgage book. Rival banks including HSBC, Lloyds Banking Group and NatWest Group are now being sounded out to buy around a £3 billion chunk of its mortgage book, according to sources who spoke to Sky News and the FT.
Selling the assets would reduce the bank’s earnings but also sharply reduce the amount of capital it is forced to hold.
Metro Bank did not immediately respond to CNBC’s request for comment on the reports; nor did any of the rival banks cited.

However, analysts said the bank’s fund-raising prospects did not look good.
Investment bank Stifel on Friday downgraded the stock from “hold” to “sell,” saying it thinks there are “no easy solutions for the bank and risks to the bonds remain skewed to the downside.” It noted that the bank could be nationalized under the Bank of England’s resolution scheme and then sold on, either as a whole or in parts.
“We think at this point the bank is in a difficult position, with capital needs potentially of up to a billion over the next two years,” the analysts said, adding that the bank is just about breaking even or marginally profitable under “currently benign market condition.”
Barclays Bank also downgraded the stock to underweight on Friday.
Meanwhile, Fitch Ratings on Thursday placed the bank on “ratings watch negative” based on its assessment that “short-term risks to the UK challenger bank’s business model stabilization, capital buffers and funding have risen.”

A challenge to traditional banking

The developments mark the latest phase in an ongoing saga for Metro Bank, which launched in 2010 with a pledge to challenge traditional banking in the wake of the financial crisis.
Last month, the Bank of England’s main regulator, the Prudential Regulation Authority, suggested that it was unlikely to allow the lender to use its own internal risk models for some mortgages.
The bank’s chair Robert Sharpe was called in on Thursday to meet officials from the central bank’s regulatory authority, as well as the Financial Conduct Authority (FCA), according to the FT, which cited people briefed on the situation.
The sources said it was the latest in a series of contacts between regulators and the bank over the past month as its share price almost halved.
When contacted by CNBC, the Bank of England declined to comment on the meeting.

Limited risks of contagion

Shares of Metro Bank have lost around two-thirds of their value since the middle of February. The bank was valued at £87 million as of the Wednesday close, according to Reuters.
Given its relatively low market cap, ratings agency DBRS Morningstar, which holds no rating on the bank, said in a note that Metro Bank’s ability to access external financing will be “highly constrained.”
However, it added that the bank’s difficulties were unlikely to have a broader impact on the U.K.’s financial sector due to its size and idiosyncratic issues.
In 2019, the bank reported a serious miscalculation of its risk-weighted assets, damaging its reputation and resulting in fines of £10 million and £5 million from the FCA and the PRA, respectively.
In the meantime, short sellers have been tapping into the bank’s misfortunes. Investors betting against the bank have gained £4.8 million so far in 2023, and £2.5 million in October alone, according to financial analytics firm Ortex.
“The short interest in Metro is very high,” it said in a note. “ORTEX currently estimates that 9.35% of the freely tradable shares are on loan and most likely shorted.” More

Justin Sullivan | Getty Images

Check out the companies making the biggest moves in premarket trading:
Pioneer Natural Resources — The energy stock soared nearly 10% in premarket trading after The Wall Street Journal reported Pioneer was close to reaching a deal to be bought by Exxon Mobil for about $60 billion. Shares of Exxon were down 3%.

Levi Strauss — The denim apparel maker shed 1.3% after cutting its full-year sales forecast. Levi’s fiscal-third quarter revenue missed expectations, but earnings per share came in slightly above. Levi’s CEO said consumers were buying fewer items due to inflation and rising mortgage and gas prices.
Philips — The Dutch health tech company dropped more than 8.7% after the U.S. Food and Drug Administration said its handling of its 2021 sleep apnea device recall wasn’t adequate. The FDA said additional testing was necessary on the devices, known as continuous positive airway pressure, or CPAP, machines. Shares of rival ResMed gained nearly 3%.
Tesla — Tesla shares fell more than 1% after the EV maker cut the price of some Model 3 and Model Y vehicles in the U.S. The move followed the company’s third-quarter vehicle production and deliveries update, which missed analysts’ expectations.
Apellis Pharmaceuticals — Shares of the biopharmaceutical company rose 5.5% after Apellis reported growing sales for its Syfovre drug in August. JPMorgan upgraded the stock to overweight from neutral, saying that the success of Syfovre should shift sentiment around Apellis heading into 2024.
Aehr Test Systems — Shares fell more than 11% despite Aehr Test Systems reporting an earnings and revenue beat for its first quarter. The company also reaffirmed its guidance for the fiscal year.

Frontline — The shipping stock shed 4.8% in premarket trading after Euronav said its second shareholder, Compagnie Maritime Belge, would acquire Frontline’s shares in Euronav for $18.43 per share.
— CNBC’s Tanaya Macheel and Jesse Pound contributed reporting. More

In a proposed draft, the Cyberspace Administration of China has said no government oversight is needed for data exports if regulators haven’t stipulated that it qualifies as “important.”
New “draft regulation relieves companies of some of the difficulties with cross-border data transfer and personal information protection,” the European Union Chamber of Commerce in China said in a statement to CNBC.
The U.S.-China Business Council’s latest annual survey found the second-biggest challenge for members this year was around data, personal information and cybersecurity rules.

Pictured here is an exhibition on big data for transportation in Chongqing on Oct. 21, 2020.
China News Service | China News Service | Getty Images

BEIJING — Chinese authorities are signaling a softer stance on once-stringent data rules, among recent moves to ease regulation for business, especially foreign ones.
Over the last few years, China has tightened control of data collection and export with new laws. But foreign businesses have found it difficult to comply — if not operate — due to vague wording on terms such as “important data.”

Now, in a proposed update, the Cyberspace Administration of China (CAC) has said no government oversight is needed for data exports if regulators haven’t stipulated that it qualifies as “important.”
That’s according to draft rules released late Sept. 28, a day before the country went on an eight-day holiday. The public comment period closes Oct. 15.

“The release of the draft is seen as a signal from the Chinese Government that it is listening to businesses’ concerns and is ready to take steps to address them, which is a positive,” the European Union Chamber of Commerce in China said in a statement to CNBC.
“The draft regulation relieves companies of some of the difficulties with cross-border data transfer and personal information protection partly by specifying a list of exemptions to relevant obligations and partly by providing more clarity on how data handlers can verify what is qualified by authorities as ‘important data,'” the EU Chamber said.

This is a small but important step for Beijing to show it’s walking the walk when the State Council earlier pledged to facilitate cross-border data flows…

Reva Goujon
Rhodium Group

The EU Chamber and other business organizations have lobbied the Chinese government for better operating conditions.

The cybersecurity regulator’s draft rules also said data generated during international trade, academic cooperation, manufacturing and marketing can be sent overseas without government oversight — as long as they don’t include personal information or “important data.”
“This is a small but important step for Beijing to show it’s walking the walk when the State Council earlier pledged to facilitate cross-border data flows to improve the investment climate,” Reva Goujon, director, China Corporate Advisory at Rhodium Group, said in an email Friday.
The proposed changes reflect how “Beijing is realizing that there are steep economic costs attached to its data sovereignty ideals,” Goujon said.
“Multinational corporations, particularly in data-intensive sunrise industries which Beijing is counting on to fuel new growth, cannot operate in extreme ambiguity over what will be considered ‘important data’ today versus tomorrow and whether their operations will seize up over a political whim by CAC regulators.” 

More regulatory clarity for business?

China’s economic rebound from Covid-19 has slowed since April. News of a few raids on foreign consultancies earlier this year, ahead of the implementation of an updated anti-espionage law, added to uncertainties for multinationals.
“When economic times were good, Beijing felt confident in asserting a stringent data security regime in the footsteps of the EU and with the US lagging behind in this regulatory realm (for example, heavy state oversight of cross-border data flows and strict data localization requirements),” Rhodium Group’s Goujon said.
The country’s top executive body, the State Council, in August revealed a 24-point plan for supporting foreign business operations in the country.
The text included a call to reduce the frequency of random inspections for companies with low credit risk, and promoting data flows with “green channels” for certain foreign businesses.
During consultancy Teneo’s recent trip to China, the firm found that “foreign business sources were largely unexcited about the plan, noting that it consists mostly of vague commitments or repackaging of existing policies, but some will be useful at the margin,” managing director Gabriel Wildau said in a note.
He added that “the 24-point plan included a commitment to clarify the definition of ‘produced in China’ so that foreign companies’ domestically made products can qualify.”
When U.S. Commerce Secretary Gina Raimondo visited China in August, she called for more action to improve predictability for U.S. businesses in China. Referring to the State Council’s 24 points, she said: “Any one of those could be addressed as a way to show action.”
The U.S.-China Business Council’s latest annual survey found the second-biggest challenge for members this year was around data, personal information and cybersecurity rules. The first challenge they cited was international and domestic politics.

Read more about China from CNBC Pro

The council was not available for comment due to the holiday in China.
While the proposed data rules lower regulatory risk, they don’t eliminate it because “important data” remains undefined — and subject to Beijing’s determination at any time, Martin Chorzempa, senior fellow at the Peterson Institute for International Economics, and Samm Sacks, senior fellow at Yale Law School Paul Tsai China Center and New America, said in a PIIE blog post Tuesday.
Still, “not only did the leadership commit to a more ‘transparent and predictable’ approach to technology regulation in the wake of the tech crackdown, the new regulations follow directly on the State Council’s 24 measures unveiled in August, which explicitly call for free data flows. Other concrete actions to improve the business environment could flow from those measures as well,” Chorzempa and Sacks said.
The proposed changes to data export controls follow an easing in recent months on other regulation.
In artificial intelligence, Baidu and other Chinese companies in late August were finally able to launch generative AI chatbots to the public, after Beijing’s “interim regulation” for the management of such services took effect on Aug. 15.

The new version of the AI rules said they would not apply to companies developing the tech as long as the product was not available to the mass public. That’s more relaxed than a draft released in April that said forthcoming rules would apply even at the research stage.
The latest version of the AI rules also did not include a blanket license requirement, only saying that one was needed if stipulated by law and regulations. It did not specify which ones.
Earlier in August, Baidu CEO Robin Li had called the new rules “more pro-innovation than regulation.”  More

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JPMorgan’s Marko Kolanovic is bracing for a 20% sell-off to hit the S&P 500.
According to the Institutional Investor hall-of-famer, high interest rates are creating a breaking point for stocks — and choosing cash at a 5.5% return in money market and short-term Treasurys is a key protection strategy right now.

“I’m not sure how we’re going to avoid it [recession] if we stay at this level of interest rates,” the firm’s chief market strategist and global research co-head told CNBC’s “Fast Money” on Thursday.
The S&P 500 closed at 4,258.19 on Thursday and is on the cusp of a five-week losing streak. The index is down more than 5% over the past month.
Kolanovic believes the weakness isn’t a strong sign a monster move lower is already here. He indicates a near-term bounce is still possible because a lot hinges on economic reports over the next few months.
“[We’re] not necessarily calling for an immediate sharp pullback,” he said. “Could there be another five, six, seven percent upside in equities? Of course… But there’s a downside. It could be 20% downside.”

Arrows pointing outwards

He warns the “Magnificent Seven” stocks, which includes Apple, Amazon, Meta, Alphabet, Nvidia, Tesla and Microsoft, are among the most vulnerable to steep losses due to their historic gains amid high rates. The group is up 83% so far this year — carrying the bulk of the S&P 500’s gains.

“If there’s a recession, I think the magnificent [seven]… will catch down where the rest is,” said Kolanovic, citing beaten-up sectors including consumer staples and utilities.
Plus, Kolanovic believes consumers are getting dangerously cash strapped due to the economic backdrop.
“The job market is still strong. But you are starting to see the stress in [the] consumer if you look at sort of the delinquencies in the [credit] cards and auto loans,” he noted. “We remain somewhat negative still.”
Kolanovic, Institutional Investor’s top-ranked equity strategist, came into the year with an S&P 500 year-end target of 4,200. The index closed 2022 at 3,839.50.
Disclaimer More

At the center of the storm of this week’s market turmoil is the 10-year Treasury yield, one of the most influential numbers in finance.
The yield, which represents borrowing costs for issuers of bonds, has climbed steadily in recent weeks and reached 4.8% Tuesday, a level last seen just before the 2008 financial crisis.
“Unfortunately, I do think there has to be some pain for the average American now,” said Lindsay Rosner, head of multi sector investing at Goldman Sachs asset and wealth management.

Federal Reserve Board Chair Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting at the Federal Reserve in Washington, D.C., on July 26, 2023.
SAUL LOEB | Getty

Violent moves in the bond market this week have hammered investors and renewed fears of a recession, as well as concerns about housing, banks and even the fiscal sustainability of the U.S. government.
At the center of the storm is the 10-year Treasury yield, one of the most influential numbers in finance. The yield, which represents borrowing costs for issuers of bonds, has climbed steadily in recent weeks and reached 4.8% on Tuesday, a level last seen just before the 2008 financial crisis.

The relentless rise in borrowing costs has blown past forecasters’ predictions and has Wall Street casting about for explanations. While the Federal Reserve has been raising its benchmark rate for 18 months, that hasn’t impacted longer-dated Treasurys like the 10-year until recently as investors believed rate cuts were likely coming in the near term.
That began to change in July with signs of economic strength defying expectations for a slowdown. It gained speed in recent weeks as Fed officials remained steadfast that interest rates will remain elevated. Some on Wall Street believe that part of the move is technical in nature, sparked by selling from a country or large institutions. Others are fixated on the spiraling U.S. deficit and political dysfunction. Still others are convinced that the Fed has intentionally caused the surge in yields to slow down a too-hot U.S. economy.
“The bond market is telling us that this higher cost of funding is going to be with us for a while,” Bob Michele, global head of fixed income for JPMorgan Chase’s asset management division, said Tuesday in a Zoom interview. “It’s going to stay there because that’s where the Fed wants it. The Fed is slowing you, the consumer, down.”

The ‘everything’ rate

Investors are fixated on the 10-year Treasury yield because of its primacy in global finance.
While shorter-duration Treasurys are more directly moved by Fed policy, the 10-year is influenced by the market and reflects expectations for growth and inflation. It’s the rate that matters most to consumers, corporations and governments, influencing trillions of dollars in home and auto loans, corporate and municipal bonds, commercial paper, and currencies.

“When the 10-year moves, it affects everything; it’s the most watched benchmark for rates,” said Ben Emons, head of fixed income at NewEdge Wealth. “It impacts anything that’s financing for corporates or people.”

The yield’s recent moves have the stock market on a razor’s edge as some of the expected correlations between asset classes have broken down.
Stocks have sold off since yields began rising in July, giving up much of the year’s gains, but the typical safe haven of U.S. Treasurys has fared even worse. Longer-dated bonds have lost 46% since a March 2020 peak, according to Bloomberg, a precipitous decline for what’s supposed to be one of the safest investments available.
“You have equities falling like it’s a recession, rates climbing like growth has no bounds, gold selling off like inflation is dead,” said Benjamin Dunn, a former hedge fund chief risk officer who now runs consultancy Alpha Theory Advisors. “None of it makes sense.”‘

Borrowers squeezed

But beyond investors, the impact on most Americans is yet to come, especially if rates continue their climb.
That’s because the rise in long-term yields is helping the Fed in its fight against inflation. By tightening financial conditions and lowering asset prices, demand should ease as more Americans cut back on spending or lose their jobs. Credit card borrowing has increased as consumers spend down their excess savings, and delinquencies are at their highest since the Covid pandemic began.
“People have to borrow at a much higher rate than they would have a month ago, two months ago, six months ago,” said Lindsay Rosner, head of multi sector investing at Goldman Sachs asset and wealth management.
“Unfortunately, I do think there has to be some pain for the average American now,” she said.

Retailers, banks and real estate

Beyond the consumer, that could be felt as employers pull back from what has been a strong economy. Companies that can only issue debt in the high-yield market, which includes many retail employers, will confront sharply higher borrowing costs. Higher rates squeeze the housing industry and push commercial real estate closer to default.
“For anyone with debt coming due, this is a rate shock,” said Peter Boockvar of Bleakley Financial Group. “Any real estate person who has a loan coming due, any business whose floating rate loan is due, this is tough.”
The spike in yields also adds pressure to regional banks holding bonds that have fallen in value, one of the key factors in the failures of Silicon Valley Bank and First Republic. While analysts don’t expect more banks to collapse, the industry has been seeking to offload assets and has already pulled back on lending.
“We are now 100 basis points higher in yield” than in March, Rosner said. “So if banks haven’t fixed their issues since then, the problem is only worse, because rates are only higher.”

5% and beyond?

The rise in the 10-year has halted in the past two trading sessions this week. The rate was 4.71% on Thursday ahead of a key jobs report Friday. But after piercing through previous resistance levels, many expect that yields can climb higher, since the factors believed to be driving yields are still in place.
That has raised fears that the U.S. could face a debt crisis where higher rates and spiraling deficits become entrenched, a concern boosted by the possibility of a government shutdown next month.
“There are real concerns of ‘Are we operating at a debt-to-GDP level that is untenable?'” Rosner said.
Since the Fed began raising rates last year, there have been two episodes of financial turmoil: the September 2022 collapse in the U.K.’s government bonds and the March U.S. regional banking crisis.
Another move higher in the 10-year yield from here would heighten the chances something else breaks and makes recession much more likely, JPMorgan’s Michele said.   
“If we get over 5% in the long end, this is legitimately another rate shock,” Michele said. “At that point, you have to keep your eyes open for whatever looks frail.” More

Billionaire investor Ken Griffin’s flagship hedge fund rallied last month.
Citadel’s multistrategy flagship Wellington fund gained 1.7% in September.
The market has grown more volatile and fragile as investors grapple with a higher-for-longer interest rate regime.

Ken Griffin, founder and CEO of Citadel, at CNBC’s Delivering Alpha summit on Sept. 28, 2022.
Scott Mlyn | CNBC

Billionaire investor Ken Griffin’s flagship hedge fund rallied last month when the broader market was rattled by tight monetary policy as well as rising recession fears, according to a person familiar with the returns.
Citadel’s multistrategy flagship Wellington fund gained 1.7% in September, bringing its 2023 performance to 12.6%, the person said. The S&P 500 pulled back 4.9% last month, suffering its worst month of the year. The equity benchmark is still up 11% for the year.

The market has grown more volatile and fragile as investors grapple with a higher-for-longer interest rate regime. Stocks resumed the sell-off this week as the 10-year Treasury yield surged to a 16-year high. Many notable investors, including Pershing Square’s Bill Ackman, have warned of a deteriorating economy after a series of aggressive rate hikes.
Griffin, founder and CEO of Citadel, told CNBC last month he was skeptical that this year’s rally, powered mostly by artificial intelligence-related stocks, can be sustainable.
“I’m a bit anxious that this rally can continue,” Griffin said. “Obviously one of the big drivers of the rally has been … just the frenzy over generative AI, which has powered many Big Tech stocks. … We’re sort of in the seventh or eighth inning of this rally.”
Citadel’s equities fund, which uses a long/short strategy, was up 1.1% in September and 10.7% this year, while its global fixed income fund is 8.8% higher so far in 2023, the person said.
Citadel had $61 billion in assets under management as of Sept. 1. The Wellington fund soared 38% in 2022 for its best year ever. More