Anticipating where the 3-month yield will be in May is much easier than figuring out where the 10-year yield will be.
The Fed has penciled in quarter-point hikes in February and March with decent odds of yet another hike in May. The market agrees with that assessment.
Target Rate Probabilities for May 3
The Fed’s Commitment and Credibility
Numerous Fed officials have repeated they will hike more than the market expects and stay there longer.
I don’t doubt that unless something breaks in a major way. If the Fed gets in hikes in February and March, then the 3-month Treasury note will start inching towards 5 percent possibly as soon as April.
The Fed ridiculously kept QE going all the way to March of 2022 for no reason other than it said it would.
Supposedly, that maintained credibility. They did not want to shock the market by doing something unexpected.
Now, the Fed has promised to hike rates more and stay they longer. They probably will do so to maintain credibility.
The Fed would have more credibility if it did not yap its intent to market Pavlov’s dogs. Forward guidance blew up in the Fed’s face and I expect that to happen again.
Yield Curve Comments
No Recession Until When?
I saw a Tweet yesterday that caught my eye but I can no longer find it.
It said “No recession until the yield curve steepens.” Well the curve has been steepening, just not in the normal sense.
I don’t buy the theory. Here is a similar Tweet.
No 2023 Recession
Economic data has been terrible and I expect huge negative revisions to jobs, income, and GDP at some point.
It would not at all be shocking if we were in recession already.
Sobering Thought on When the Market Bottoms
Existing Home Sales Decline 10th Month
Note that Existing Home Sales Decline 10th Month, Down Another 7.7 Percent
Never before have we seen a housing collapse like this outside of recession.
Terrible Economic Data
The December jobs report was anemic and the ISM services PMI was an outright disaster.
- December Jobs: Employment Rises by 717,000 All of Them Part Time
- ISM Services Plunges 6.9 Points Into Contraction, Another Recession Warning
- Stock Market Cheers Weak Job Report, But Big Picture Still Looks Grim
Although housing in the gutter and the rest of the economy sinking fast, the Fed is committed to a course of action to maintain credibility.
To steepen in the traditional sense first requires the curve to flatten. With the Fed holding rates higher for longer, that won’t easily happen unless the Fed panics due to a credit event.
So, don’t count on the yield curve steepening as a signal for recession. Here is a key idea regarding the stock market:
This post originated on MishTalk.Com.
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2022. But they should be 7% lower than in 2021 and 3% lower than in
2020, based on an estimate of the first 11 months of 2022, the Associated Press reported.”
patients over 65 and they see around 11 deaths each year. It fluctuates
every year with sigma= 3.3, exactly as predicted from Poisson
distribution statistics. But in 2022, they had 36 deaths which is a 7.5
sigma event. So that couldn’t have happened by chance. The excess deaths
were all attributed to the COVID vaccine by the doctor and nurse in
that clinic.”