Treasury yields are up 4 basis points across the curve in a sign of either:
- The market over-pricing a dovish Fed
- Angst ahead of the Fed decision
I tend to think it’s the latter as bond buyers have flooded in over the past two months. US 10s highlight just how far the move has come and how small the bounce in the past two days has been.
US 10s, daily
Looking to beyond the Fed decision, there is an interesting debate about the long end. By cutting rates deeper now, does it mean that the Fed’s terminal rate will be higher? Said differently, by front-loading cuts does it mean that they ultimately cut less?
I think that’s a compelling argument but I don’t think it’s the one the market is making today as the selling is even across the curve. If the market does come to that conclusion, it will be more of a bull steepener.
