Speculation is rising to almost certainty that the Fed will lower interest rates in two weeks and again by year’s end. The two-year Treasury or the instrument most sensitive to monetary policy is around its lowest yield since 2022 and the yield curve is the steepest since early 2021.
The outlook for longer dated Treasuries is horrific given the unending demand for monies needed by the government amplified by the President’s incessant attacks on the FOMC which reeks as political interference.
As widely accepted, an aggressive Fed in an inflationary environment that is not yet tamed is toxic to longer dated Treasury debt.
Some are speculating the yield curve could steepen by the same degree that it was inverted utilizing the ugly political environment in France and Germany as evidence. Finance ministers in both countries have commented that their countries are essentially broke and current spending policies will cause significantly higher long-term interest rates to attract investors.
Legendary and billionaire hedge fund manager Ray Dalio has stated many times the global economies are on the verge or are perhaps have just entered a global reset where higher longer dated yields will be demanded to compensate for the risk the risk one is taking.
Equities ended nominally higher on Fed optimism with the market looking past perhaps elevated inflation readings that might be released later in the week.
Last night the foreign markets were mixed. London was up 0.26%, Paris up 0.27% and Frankfurt down 0.50%. China was down 0.51%, Japan down 0.42% and Hang Seng up 1.19%.
Futures are flat heading into this week’s inflation readings. The 10-year is off 7/32 to yield 4.07%.
