Octavio Marenzi, Opimas CEO, joins Yahoo Finance’s Alexis Christoforous to discuss the rising treasury yields and the outlook on bitcoin.
ALEXIS CHRISTOFOROUS: Welcome in Octavio Marenzi. He is CEO of Opimas. Octavio, good to see you. So you just heard that conversation there with Jared. I mean, look, when you see yields rising as they are in the bond market, shouldn’t that be seen as a positive thing? I mean, it’s reflecting that the economy is bouncing back. So are these fears of higher rates a little overblown, do you think?
OCTAVIO MARENZI: Well, I think it’s really interesting if you see how the interest rates have actually shifted. And there seems to be a real kink at sort of the three-year bond mark. So up to about three years, there’s no change. It’s still interest rates are really very, very low. Once you get to three years and beyond, we sort of have seen an upward surge there, so the yield curve sort of becoming steeper there.
And so what that says to me is people are concerned about inflation about three years out and that the Fed will have to sort of start to increase interest rates around that time frame. So that fits well with what you just were talking about, Powell saying they’re going to stay on QE until 2024. At that stage, you might have to start raising interest rates again.
So that’s why I think up to the three-year mark we’re seeing no change, very, very low interest rates still. And beyond that, they’re starting to shift up. And I think people are concerned about inflation taking hold.
ALEXIS CHRISTOFOROUS: Are there sectors that you see as benefiting from the steepening yield curve, and are you moving things around in the portfolio as you see the activity unfold there in the bond market?
OCTAVIO MARENZI: Well, the sector that traditionally benefits more than anyone else from a steeper yield curve is the banking industry because they basically borrow at short-term rates and lend out on longer-term rates. I mean, that’s a gross simplification of how a bank works, but in essence it’s that. So that is a move that is actually quite good for the banks, for the lending business. And they should see a boost to their net interest margin as a result of that.
And you can see that in the bank stocks over the course of the past month or so. They’ve been actually seeing some interesting activity, where things are moving up and doing quite nicely. So it’s a sector that’s outperformed sort of the broader market, certainly outperformed the technology side of things over the course of the past month as we’ve seen these interest rates changing. So they should benefit from that.
And also on the trading side, as we see these shifts in interest rates, people have to rebalance their portfolios. And that’s pretty good for them on the trading side, on the fixed income trading side of things.
ALEXIS CHRISTOFOROUS: And what we’ve seen a lot of recently, Octavio, is people making lots of moves in the commodities market, right? We’ve got gold down about 3% today, silver down almost 5%. But traditionally, aren’t these inflation hedges? Or maybe perhaps Bitcoin has now taken on that role. But it looks as though investors are starting to price in an inflation premium in this market. So what does that mean for our traditional inflation hedges?
OCTAVIO MARENZI: Well, I think you’re absolutely right. The traditional inflation hedges would be gold and maybe silver and things like that. And there used to be, I think, that would be where people concerned about inflation would put their money. Bitcoin stims have taken a lot of that activity away from gold. So you’re left with gold now more being sort of momentum players. People are looking at that and say, well, I’m just going to buy as it goes up and down, like any other asset, and they’re not really look at any sort of the fundamentals of it.
So Bitcoin has taken that away, it seems, has knocked gold off its pedestal. I do wonder what happens with…