To surprise of many, the 30-year Treasury is now at the highest yield since September as the implications of last week’s interest rate cut and policy stance is being digested by the markets.
Inflation is still 50% to 75% higher than 2% FOMC mandated speed limit. Economic growth is “steady” and perhaps accelerating, companies are not firing workers [nor are they are hiring].
The demand for debt from the mega tech behemoths for AI spending and the unsatiable demand by the government is weighing upon sentiment.
The two year-Treasury, the instrument most sensitive to monetary policy, however, is stuck in a tight range between 3.5% and 3.6% since September, perhaps discounting today’s monetary policy.
A major question at hand is the yield curve returning to its historical slope? Will the slope exceed on the upside by a similar degree as it experienced on the downside?
The consistency of the past 5-7 years is the unexpected is constantly occurring. Many past correlations did not unfold for a myriad of conflicting reasons. Is this about to change?
Friday the NASDAQ fell over 2% as Broadcom’s sales outlook fell short of lofty expectations causing more dissention and concern about returns from the massive AI spending. Rising long-term interest rates were also a factor in the decline.
Tomorrow is the release of November’s unemployment data. Will the statistics be considered “noisy,” the result of the shutdown? A small majority of the FOMC is focusing more on jobs than on inflation.
What will happen today?
Last night the foreign markets were mixed. London was up 0.96%, Paris up 1.10% and Frankfurt up 0.45%. China was down 0.55%, Japan down 1.31% and Hang Seng down 1.34%.
Futures are up about 0.4% amid bullish 2026 predictions. Bitcoin is up about 1.3% adding to signs that risk sentiment is steadying. The cyber currency is down about 30% since its early October peak. The 10-year is up 7/32 to yield 4.16%.
