“With still-positive spreads, Treasuries are saying that the Fed is not going to ‘overtighten'” and cause a recession, according to Colas. See: Treasury yield curve risks inverting relatively early after start of Fed rate hike cycle, warns Deutsche Bank An inversion of that portion of the yield curve, seen when the yield on the 2-year Treasury rises above the 10-year Treasury yield, has historically signaled a looming recession. ![]() Meanwhile, the closely watched spread between 2-year and 10-year Treasury yields remains positive, “which is good news,” said Colas. The next reading on inflation, as measured by the personal consumption expenditures price index, is due out Thursday. “Upcoming economic data will almost certainly show continued inflation pressures.” “Real rates can – and should – go positive,” Colas wrote. The recent move higher in 10-year Treasury yields is probably not over, according to the DataTrek note. Was down about 2 basis points Monday afternoon, trading around 2.46%, FactSet data show, at last check. “The rapid shift in market sentiment related to the first one and now several 50-basis point rate hikes this year could be what causes the 2022 version of the 2013 Tantrum.” DataTrek co-founder Nicholas Colas said in the note. In 2013, a “tantrum” in the bond market “pushed real rates from similar levels to positive over the course of a month,” DataTrek co-founder Nicholas Colas said in the note. “The market is collectively anchored to the trends of the last cycle.”īefore the FOMC meeting in June 2021, “the Fed and the market were hardly pricing in any rate moves until 2024,” he said, “and only 3 hikes for 2022 as recently as the start of this year.” The amount of rate hikes now priced in by the market for 2022 “still isn’t a huge year of tightening historically,” said Reid.ĭespite the spike higher in 10-year Treasury yields, “real interest rates remain solidly negative,” according to a DataTrek Research note emailed Monday morning. “Overall there has been a constant misunderstanding of this cycle,” Reid said. That’s “given just how far the Fed is behind the curve.” If the post-Global Financial Crisis cycle “could be erased from people’s memory banks,” then markets might be pricing 300 to 400 basis points of hikes this year rather than around 240 basis points now priced in, Reid wrote in his note highlighting the chart. Meanwhile, “the fact that the last decade was so moribund from an activity and inflation point of view means that markets still refuse to believe the Fed can get very far in this cycle,” according to Reid. inflation rate climbs again to 7.9%, CPI shows, and Ukraine war threatens more pain for consumers The Fed hiked its rate 25 basis points from near zero, and has signaled a further tightening of its monetary policy this year. That’s the highest yield since based on 3 pm Eastern Time levels.Īt the conclusion of its Federal Open Market Committee meeting on March 16, the Federal Reserve raised its benchmark interest rate for the first time since 2018, in a step toward combating high inflation. Last week the yield on the 10-year Treasury note surged 34.5 basis points to 2.491% on Friday, the largest weekly increase since September 2019, according to Dow Jones Market Data. “An array of Fed speakers during the week either endorsed this or didn’t rail against it too strongly.” CNN Sans ™ & © 2016 Cable News Network.“The dam finally broke last week with yields rocketing up as markets woke up to the reality that every upcoming FOMC meeting could bring” a rate hike of 50 basis points, Reid wrote in a separate note, on macro strategy, Monday. Market holidays and trading hours provided by Copp Clark Limited. All content of the Dow Jones branded indices Copyright S&P Dow Jones Indices LLC and/or its affiliates. Standard & Poor’s and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Chicago Mercantile: Certain market data is the property of Chicago Mercantile Exchange Inc. ![]() US market indices are shown in real time, except for the S&P 500 which is refreshed every two minutes. ![]() Your CNN account Log in to your CNN account
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