#206: The one time "5%" makes headlines
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On Monday, the US 10-year Treasury yield peeped above 5% for the first time since July 2007
Let’s take a look at:
What are Treasury yields?
Why did the 10-year yield hit 5%?
What will the Fed do in the next November meeting?
The current yield curve
The red line is as of 9/25, after the most recent Fed meeting in September, and the blue line is as of yesterday. (The slightly red shaded area is the current Fed Funds target of 5.25~5.50%)
A few things to note:
Yes, the yield curve is still inverted, a historically reputable indicator for a recession.
The front end of the curve, even all the way up to the 2-year point, hasn’t changed that much, which could be a hint at the Fed maintaining rates steady for a while.
The 10-year point has risen significantly - to levels higher than July 2007
What does this mean?
A few primary factors the market’s paying attention to:
Investors are pricing in stronger US growth -- in fact, US' Q3 GDP came in at a whopping 4.9% yesterday, hotter than expected
Underlying federal deficit roughly doubled in the last year -- though Treasury Secretary Janet Yellen said yesterday that she does not think the US budget deficit has much to do with rising yields
Even Fed chair Jerome Powell recently acknowledged that "inflation is still too high, and a few months of good data are only the beginning"
Coming up next Wednesday…
As of writing, the market is pricing in a 97.5% probability that the Fed will pause and maintain rates for the upcoming FOMC meeting next Wednesday (11/1).
Couple things to look for next Wednesday:
If there is a consensus decision from policymakers on the outcome
How much Powell mentioned the idea of rate cuts
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