Summary: Has gravity flipped? Up is down and down is up? Go figure:
4.27.23 --10 year 3.53%
5.3.23 -- The Fed made an announcement that broadly hinted that future rate increases would be in a "wait and see mode."
6.2.23 -- Debt ceiling agreement
6.13.23 -- CPI materially improves from 4.9% to 4.0%
6.14.23 -- Fed did NOT change rates, first time in 15 months
6.22.23 -- 10-year 4.05%
If rates go up when we have very good news, what would have happened if it were bad?
For the past 2 weeks, 10 Year Treasury rates were up 33bp Past week: up 20bp. On 5.3.23 the Fed made an announcement that broadly hinted that future rate increases would be in a “wait and see mode. CPI was down from 4.9% to 4.0% on 6.13..23 and 6.14.23 Fed did not increase rates, for the first time in 15 months.
The red line is the most current rates while the green line is from one week ago.
The entire yield curve increased. 2-year term increased 12bp with the 10-year up 20bp. This made the inverted yield curve less steep. One-month rates were up 7bp.
Over the past 16 years, the yield curve has not been inverted anywhere close to where it is now. The blue line is 1 year T bill rates and the black line is the 10 year. The blue should be below the black line, which indicates a positive sloped yield curve. We are not anywhere close to this. To get back to a positively sloped yield curve, either short-term rates need to decline and/or long-term rates need to increase. 1-year rates exceed 2007.
Volatility in the One Month Treasury market has diminished in the past few weeks. With the inverted yield curve, any firm borrowing short to fund longer-term assets will be stressed: mortgage banking firms and bond investment firms. Note the muted reaction on the One Month rates to the news regarding the improved CPI and Fed holding rates unchanged.
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