Rates Spark: Feels a bit like a hike, for bonds | articles

Our detailed Fed note is here. We won’t re-hash it. Instead, here are a few additional observations.

First, it is interesting that Stephen Miran was the only dissenter. It seems to us that this could be a purposeful decision on the part of the rest of the FOMC to show some support to Chair Powell, and, indeed, as an implicit act of support for Fed independence. Maybe we’re reading too much into this, but if true, that’s a positive messaging.

Second, while Chair Powell has pointed to weakness in the labour market, it’s clear that there is quite some confusion on where exactly we are on the labour market. In particular with respect to revisions that have completely taken away the relative oomph that we had assumed to be in place in the past year. But also on how to interpret the labour market ahead, in light of immigration controls in particular.

Third, it’s clear the Fed continues to expect some upward pressure on prices from tariffs. The Fed has cut as inflation is rising – unusual to say the least.

Fourth, the bond market is all over the place on the back of a lot of this. Rates went down and up and back down again, only to end up higher. The curve too, was up and down and shake it all about, but in the end the 2/10yr got steeper while the 10/30yr flattened. Mostly, this reflected an underperformance by the 10yr. And interestingly enough, the immediate post-Fed cut announcement was met with the 10yr briefly breaking below 4%, only to then decide to get much closer to 4.1%.

In the end, we come away with the notion that, ultimately, this curve steepens out, and from both ends. So far, it’s the back end that’s holding in (in light of the big pre-FOMC moves to the downside for long yields). For a long time it’s felt vulnerable out there. Some day, that will manifest in a ‘proper’ move to the upside for long yields. Or you would think so. We’re still waiting.