Monetary Policy & Inflation | Rates | US
I’m unsure where to begin to address the complacency lingering in the bond market. Is it a function of lazy longs that are enjoying the curve slide carry trades with the Fed perma-hold? Or is it disheartened bond bears recognising an uphill battle after seeing what the Fed can do when they step in with force? Either way, I feel that something is brewing in the bond market and that reports of its death have been greatly exaggerated.
10-Year Yields About to Breakout?
Let’s be honest. Macro insights and forecasting plays a big role in the formulation of trades and market views. But there is always the nagging pull of recent price action that can influence and result in recency bias.
Chart 1 is case in point, where I compare some simple statistics of US 10-year yields relative to some rolling historical levels. We can see that the last three months (63 business days) of price action has a strong influence on the next direction for rates. In other words, once rates start trending, they usually stay in that same trend. That has clearly been the case recently.
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makes sense