US10Y : What the Market is saying.
Updated
Next week will be important. FOMC will decide on rates. Powell had said that they will slow down the rate hike. It should be less than the previous 75bps. It can be 50 or 25bps. Whatever it is, do you think it matters?
Well, a week before the FOMC decision, the MARKET had made a decision as well. Participants from around the world decided to drive yields lower. Last night was PANIC all around when yield went down BELOW 3.50%. This is foreseeable. In other words, the market is telling the Fed to go FLY KITE. Yield is already BELOW the EFFR. It is now more than 25bps below and once it goes 50bps below, then it brings a new meaning to what the market think/wants. Should the Fed insist on raising rates next week, this will only INCREASE the difference between the EFFR and actual yield. I am quite sure when the Fed raise rates next week, the market will double down and drive yields LOWER!!!
In the past, I learned/believe the idiom "don't fight the Fed". I begin to doubt that now.
Between now and FOMC next week, we would be hearing a lot of people giving their opinion and expertise about rate hike and how FX would react. Perhaps we should just ignore it. TALK IS CHEAP. Instead, I think it is best to follow the MONEY. The BOND market is BIG. Moving it requires a LOT OF EFFORT. I would listen to these EXPERTs running the bonds. If US10Y goes lower between now and FOMC, then we get the message from the MARKET, loud and clear.
As I said before, The MARKET decides - The Fed Implements - We just follow.
Lets get ready for PIVOT.
Good luck.
P/S : Do not just believe what I say. Use your common sense.
Well, a week before the FOMC decision, the MARKET had made a decision as well. Participants from around the world decided to drive yields lower. Last night was PANIC all around when yield went down BELOW 3.50%. This is foreseeable. In other words, the market is telling the Fed to go FLY KITE. Yield is already BELOW the EFFR. It is now more than 25bps below and once it goes 50bps below, then it brings a new meaning to what the market think/wants. Should the Fed insist on raising rates next week, this will only INCREASE the difference between the EFFR and actual yield. I am quite sure when the Fed raise rates next week, the market will double down and drive yields LOWER!!!
In the past, I learned/believe the idiom "don't fight the Fed". I begin to doubt that now.
Between now and FOMC next week, we would be hearing a lot of people giving their opinion and expertise about rate hike and how FX would react. Perhaps we should just ignore it. TALK IS CHEAP. Instead, I think it is best to follow the MONEY. The BOND market is BIG. Moving it requires a LOT OF EFFORT. I would listen to these EXPERTs running the bonds. If US10Y goes lower between now and FOMC, then we get the message from the MARKET, loud and clear.
As I said before, The MARKET decides - The Fed Implements - We just follow.
Lets get ready for PIVOT.
Good luck.
P/S : Do not just believe what I say. Use your common sense.
Note
The 10 year note auction coming up in a few hours time would be interesting. It comes a day/2 days before the CPI/FOMC. If the auction comes in below 3.50%, then most likely you know what to do!!!Note
Note that a few hours ago, the US10Y auction came in at 3.625%. It was higher than the 3.50% I anticipated BUT it came in BELOW the EFFR. This is important and also a FIRST!!! Probably the MARKET is saying, no more rate hikes??? You should know how to interpret this, right?Note
The market seems to be rejecting the 50bps just now and the Fed projection of more hikes. Most likely the yield will continue to slowly drop in the coming days.Before this, the 30s, 10s, 7s and the 5s were below the EFFR.
And now the 3s and 2s is going to be below the EFFR.
Note
As of the now, US10Y is below the EFFR by an astounding 84bps!!!The Bond Market is absolutely REJECTING the recent rate hike. I think things will get ugly next week when the market continue to drive yield further down.
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