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we know rates have been rising, but zoom way out
the chart above shows benchmark us yields (namely the treasury 10-year yield) from the 70’s till today
you can see on the right most part of the chart that the '20-'24 period so far has been nearly nothing but rate hikes following the excessive quantitative easing by the fed in response to the initial covid outbreak in march '20
the "decades-long" downtred in us yields is shown by the white band
it’s got ups and downs, but it’s generally down
as you can see, zooming out, us yields have seen a massive downtrend, which for bonds, means that it is a bull run
things are a bit different now – as the fed's performing rate hikes with unprecendented pace, the market expects that that will cause a recession
the narrative's priced in
the downtrend is broken now, which may signal that more investors are beginning to value bonds (treasuries in this case) much less valuable than previously expected
inflation hasn't even been tamed successfully, additional inflationary factors remain from supply chain disruptions triggered by the war in ukraine, and even japan's raising rates now
this could mean that the fed will keep trimming its balance sheet (aka raising rates even more) – further breaking the downtrend, causing further peaks in yields
hoped y’all enjoyed the last newsletter of the year from ape of omaha!
💡 something im thinking about
chicken prices are finally starting to fall (click image)
that's all, folks 🐒
