The Hurdle Held. Copper Broke to a Rank High.
A scarcity asset has no cash flow, so the real yield is the whole of its valuation. That rate is the return on a government bond after expected inflation is subtracted, and it is the discount rate every claim with no coupon is priced against. Last week it stopped rising. This week it read 2.887%, the softest of three flat weekly prints, and the complex did something it had not done: it ranked from the physical end rather than the monetary one. Copper, the industrial metal, broke to the top of its historical range and crude added its largest week in this sequence, while the dollar gave neither of them a currency tailwind. Bitcoin, the largest monetary leg, barely moved. Ahead: where the ranking rotated, why the dollar did not help, and what the composite's held NEUTRAL regime says about which side of this trade is holding.
The hurdle held for a third week
The 10yr real yield is 2.887% - the 10yr cash note at 5.22% less inflation compensation of 2.33% (13 October).
7 days ago the same measure read 2.909%. That was a 10yr of 5.269% less a breakeven of 2.36%; the week before, on 30 September, it read 2.905%.
Three weekly reads, all inside 3 basis points - the rate has stopped moving.
This week both legs moved down: the nominal gave back 5 basis points and the breakeven 3, so the real rate declined by 2 rather than netting to a standstill as it did 7 days ago.
That is the third week of the same behaviour. A scarcity asset is discounted at the real rate, and for three weekly reads that rate has been flat at a high level while the marks underneath it have stopped moving as one block.
Copper broke to a rank high
Copper is 6.751, up 0.1665 on the week - 2.5%. The day added 0.073, so the week carries the move and not the session.
Its percentile rank is 98.8, against 94.4 a week ago. That is a new high for this sequence: the metal sits in the top 2% of its own history.
The dollar was little changed over the same week. The index is 102.12, off 0.117, so the metal had no currency tailwind to lean on.
Copper at rank 98.8 with the dollar flat is metal bought for its own tightness. Last week this column called the top-of-range hold absorption; this week it moved, and the rank went with it.
Crude added the loudest week
West Texas crude is 94.39, up 6.19 on the week - 7.0%. Percentile rank 68.0.
A week ago it read rank 60.6, and this column flagged it as the leg with the loudest story and the softest price. That reversed. Crude is now the largest weekly gainer in the complex.
Both legs that added this week carry a physical delivery problem: copper is a mined metal in deficit and crude is a pumped barrel with a supply narrative. The legs with no delivery problem did not move.
The monetary leg sat still
Bitcoin is 83,345.49, up 1,695.49 on the week. Percentile rank 57.7, against 58.7 a week ago. 30-day trend +8.5%; 5-session +2.08%.
Ether is 2,502.39, up 30.69 on the week. Percentile rank 30.7, from 34.1 last Wednesday.
The physical legs moved 3 to 4 rank points higher while the monetary legs did not. With the hurdle flat, that rotation is the signal: the complex is not pricing one scarcity trade at one price, and this week it chose the legs with a delivery problem.
The composite held neutral
The composite headline is +0.247, regime NEUTRAL, on 5 of 5 sub-indices. A week ago it read +0.354 in TIGHTENING - the regime change Monday's column first flagged, now held for a second week.
On this scale a positive reading is tightening pressure, so NEUTRAL is the composite stepping back from the tightening edge rather than turning loose.
Rates & Policy is still the dominant sub-index at +1.465, and Scarcity is the second contributor at +0.695, down from +0.800. The drag is Liquidity at -0.724, deeper than last week's -0.570.
So the two sides of this trade moved in opposite directions inside the index: the rate side stayed dominant while the scarcity side gave back a tenth. The physical legs led the price and not the composite.
The levered claim is still the one paying
The Strategy common is $152.18 (13 October), off 12.37 on the week - 7.5%. Percentile rank 27.1, from 30.0 a week earlier, so the fall also cost the equity rank.
The preferreds held. STRC is 99.90, up 0.43 and at the very top of its range. STRF is 103.45, up 0.03. STRK is 75.60, off 0.17.
The real 10yr is 2.887%, and that is the discount rate on every long-duration claim. The preferred that pays a cash coupon sat at the top of its range while the common equity that owns the most bitcoin fell 7.5% on the same week.
The gap between the asset and the equity that holds it is a duration question, and the market priced it into the levered claim rather than the asset. A rising copper rank and a falling levered claim are one real rate talking to two different maturities.
What would confirm it, and what would break it
Confirmation is the real yield holding at or above 2.85% while copper stays above rank 95 - the complex ranking internally against a flat hurdle, with the physical legs leading. That is the read this column has carried for 3 weeks, and the last 7 days answered it in copper's favour.
The first invalidation is the real yield breaking back higher - above 2.95% - with copper still at rank 95. That would mark the complex down against a fresh hurdle and resume the repricing of 2 weeks ago.
The second is a break of rank rather than a single print: copper below rank 80, or bitcoin back into the bottom half of its range. That would mean the complex is being marked down as a block instead of ranking internally, and the rotation that defines this trade would be gone.
The third is the dollar. Copper at a new rank high with the dollar flat is the clean form of this signal; copper losing rank as the dollar rises would say the metal's move was a currency effect rather than its own tightness.
Notes
1. Copper $6.751/lb (14 October), +$0.073 on the day, +$0.1665 on the week, 98.8th percentile; 94.4th percentile (7 October). Source: COMEX front-month close.
2. 10yr real yield 2.887% on a 10yr nominal of 5.217% and a breakeven of 2.33% (13 October), against 2.909% on a 5.269% nominal and a 2.36% breakeven a week earlier. Sources: US Treasury daily par yield curve; FRED T10YIE.
3. Treasury par curve, 9 October close: 2yr 4.80%, 10yr 5.24%, 30yr 5.60%; 2s10s 44.0 basis points. Source: US Treasury daily par yield curve.
4. Gold $4,170.70 (14 October), +$36.90 on the week, 66.3rd percentile; silver $59.035, -$0.864, 39.7th percentile; copper/gold 0.00162 against 0.00159. Source: exchange closes.
5. WTI $94.39 (14 October), +$6.19 on the week, 68.0th percentile; 60.6th percentile (7 October). Source: NYMEX front-month close.
6. Bitcoin $83,345.49 (14 October), +$1,695.49 on the week, +8.5% over 30 days, +2.08% over 5 sessions, 57.7th percentile; ether $2,502.39, +$30.69, 30.7th percentile. Source: spot closes.
7. Dollar index 102.12 (14 October), -0.117 on the week. Source: ICE DXY.
8. MOVE 101.09 (13 October), -12.51 on the week, 53.9th percentile; VIX 15.27 (13 October), +0.26, 8.4th percentile. Source: exchange closes.
9. MSTR $152.18 (13 October), -$12.37 on the week, 27.1st percentile; STRC $99.90 (+0.43, 100th percentile), STRF $103.45 (+0.03), STRK $75.60 (-0.17). Source: exchange closes.
10. High-yield OAS 3.11% (12 October), investment-grade OAS 0.83% (12 October). Sources: FRED BAMLH0A0HYM2, BAMLC0A0CM.
11. Secured overnight money 3.87% effective and effective fed funds 3.88% (Federal Reserve Bank of New York reference rates), against an administered rate of 3.90% (FRED IORB, 14 October).
12. Composite headline +0.247, regime NEUTRAL, on 5 of 5 sub-indices. Rates & Policy +1.465; Scarcity +0.695; Credit & Stress -0.097; Growth & Inflation -0.103; Liquidity -0.724. Source: this site's composite, 14 October.
| TENOR | LEVEL | 1D Δ | Z (3Y) | RANGE %ILE |
|---|---|---|---|---|
| 2Y | 4.610 | -0.060 | +1.39 | 78 |
| 5Y | 4.780 | -0.070 | +2.24 | 86 |
| 10Y | 4.980 | -0.070 | +2.51 | 84 |
| 30Y | 5.320 | -0.050 | +1.99 | 83 |