Bond Market Screaming for Cuts

Image placeholder title

Yield Synopsis

  • Despite a yield rally on the 30-year bond from 1.98% to 2.10% the yield curve is still inverted out to 30 years.
  • The 2s10s inverted again today.
  • The 5sFF inversion is a whopping 62.5 basis points.

Effectively, the bond market is screaming for fast, deep cuts. Yet the CME Fedwatch chart shows that traders have thrown in the towel on big, fast cuts.

What Happened?

The Fed effectively jawboned expectations of cuts lower.

Lot More Going On

Negative Rates Damage Banks

Screwing Up the Economy

Wolf Richter explains How Negative Interest Rates Screw Up the Economy.

Divided Fed

The New York Times reports Fed Was Divided About Interest Rate Cut

Federal Reserve officials were sharply divided when they voted to cut interest rates for the first time in a decade in late July, newly released minutes from their meeting show.

Notes from the gathering, released Wednesday, show that “a couple” of participants at the meeting — not all of whom get to vote on monetary policy — would have preferred a half-point cut in the federal funds rate to shore up inflation.

But “several” wanted to hold rates steady, noting a strong job market and low unemployment. Two Fed officials voted against the decision to cut.

What's Going On Follow Up

Let's return to Randy Woodward's observation "I think there's a lot more going on than just rate hikes. Sooner or later he's going to make it clear he wants to have the ability to go negative."

I agree wholeheartedly with Woodward's first sentence. The second sentence is debatable.

The Fed is in many ways clueless. They will never see themselves as being any part of the problem.

But But But

Please note the policy difference between the Fed and the ECB.


  1. The Fed paid interest on excess reserves, thereby bailing out US banks slowly over time.
  2. The ECB with negative interest rates further crushed European banks

I have commented on that aspect many times.

Wolf Richter and Daniel Lacalle made similar observations.

Compared to the ECB the Fed Isn't Clueless

No matter how one slices things, the Fed's actions have been less damaging than the ECB's.

The Fed cannot come out and blame the ECB for stupidity, but it can attempt to jawbone expectations of big cuts lower, even as the ECB is touting more and more intervention.

What good did negative interest rates do for either Japan or the ECB?

Reflections on Errors

It's easier to spot the errors of others than the errors you make.

It's possible that at least some Fed members see the damage of the ECB's actions.

If so, the correct Fed response is "baby steps".

With a bit of poetic license, I have a musical tribute.

Baby Steps, You Make Those Cutest Little Baby Steps

Hussman Gets the Picture

Making Sense of It All

Hussman's Tweet provides is a short synopsis of the idea I presented in detail in Making Sense of 100-Yr Bonds yielding 0% and 30-Yr Bonds With Negative Yield.

Without central bank manipulation fraud, negative interest interest rates wouldn't happen.

Perhaps I am giving credit where none is due. But perhaps some Fed members see the damage that negative rates cause even if they cannot explicitly say so.

Mike "Mish" Shedlock

Another Fed Baby Step Cut Coming September 18

Unless something dramatically changes in the next 12 days, there will be another 25 basis point cut on September 18.

Expect Fed Baby Step Cuts Followed by Shock and Awe Panic

The Fed has convinced the market that baby step cuts are the order of the day even as the yield curve screams for more.

Too Late To Matter: Fed-Sponsored Economic Bust Coming No Matter What

All eyes and ears will be on the Fed today. But it doesn't matter what the Fed does or says.

Recession Watch: Panic Fed Rate Cuts Coming Up

Fed fund futures say a rate cut cycle has started. The Fed disagrees but will soon come to its senses.

Half-Point Rate Cut Odds Explode to 71% - So What? It Doesn't Matter!

The odds of a 50 basis point rate cut on July 31 topped the 70% mark in the wake of a dive in leading indicators.

What a Hoot: Fed Chairman Powell Says "Growth Has Picked Up"

In his first non-FOMC speech, Jerome Powell stresses growth and jobs.

Historic Crash in Bond Yields and More Coming

Bonds yields crashed this week. The Fed made emergency inter-meeting cuts last week but that is just the start.

Trump Calls Jerome Powell and the Fed "Naive Boneheads"

Trump's attack on the Fed reached a new level today when trump call them all "boneheads".

Demographics and Destiny: Pension Trainwreck Coming Up

A pension crisis looms as shown by excellent charts from the Harvard Kennedy School and the Peter G. Peterson Foundation