We are clearly seeing Bond Yields tightening at an unprecedented rate. What is so interesting about this is that historically, yields have been driven higher by the FEDs Fund Rate, but Powell merely did a 0.25% hike on March 16th.
Bonds have already priced in rates at 2.5% and coincidentally this was the same rate (2.5%-3.0%) that drove the market into "Volmageddon".
Here is the 30-Year Fixed Mortgage Rate Average in the US, which paints a very similar picture. This is usually when the Housing Market really starts to get affected. It has already seemingly broken resistance. Deviating from the trend.
CPI data for March will be coming and its significance can't be understated because this will reflect the impact of the sanctions the United States put on Russia. As well as further commodity data.
One thing I have yet to see anybody acknowledge is the unprecedented rise in fertilizer. Please understand how vital fertilizer is to every country in the world. Without it or even a deficiency would send the world spiraling from lack of food. If prices are too expensive for farmers to meaningfully harvest every year, the market MUST accommodate.
Bonds have a rich history of telling the real story while the FED sings like a dove. Powell has recently been Hawkish but most investors believe he will flip dovish when the time is right.
The Bond market is again, telling us the total opposite.
Just recently Powell was asked, "Are you prepared to do what it takes to get inflation under control?" to which Powell responded, "I hope history will record that the answer to your question is Yes".
Usually, the common narrative is, "don't fight the FED". Well, why does everyone seem like they are fighting the FED?
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Here is the 10-2 Yield Curve which is just 0.068% bips away from inverting. Historically, each time we have seen an inversion, it has proven to be a front-running indicator of an impending recession.
Pair that with the rise in Energy from the Ukraine War.
And the unprecedented rise in Wheat once (again from the war), only matched from 2008.
I'm following fertilizer, propane, diesel and other farm inputs closely. Most people still have no idea what's coming their way. Thanks for mentioning it.
NoOneWhoIsSomeone
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@GammaLab, Yeah it's actually really surprising how much everyone seems to be underplaying everything or just simply not paying attention. Keep your focus, when others finally catch on it will be too late. For now, we all live in complacency.
Amazing in-depth post -- Thank you - Here is my case for a bad CPI number and this relief rally to be very and a move down to be soon ...The employment numbers pretty much assure a 3/4% hike in Sept --even if the Feds pivot early next year --- They got $8 trillion on the books they have to unload while financing the new Govt spending bills now being negotiated and military costs at rising rates - China has a 1 trillion US assets to sell as they lighten up ... Bond market will choke soon...and RATES WILL RISE...regardless....and Rents and Food are a larger part of CPI than gas....so look for a bad number this week....IMHO..
heavy_assault
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so do you think long yields will top very soon and go into downtrend, like previous peaks?