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What if the Fed went a little too far raising rates? What if the Fed should not only stop raising but consider cutting them in the not too distance future? Crazy! Perhaps not as crazy as it may sound, just ask the bonds and currency market what they think, because they have a secret.
Bond Market
In the chart below you can see how much lower the 5-year yield has moved over the past month, while the short-end of the curve and long-end of the curve have remained in place.
Then there is the spread between the 2-year and 3-month t-bill, which has been contracting to levels not seen since 2013 when the Fed was in the middle of QE3.
3 Month Treasury Rate data by YCharts
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Now with a “tightening” cycle in place, the effective Federal Funds is now higher, then the 3-month treasury bill and the Funds Rate is just 20 bps below the 2-year Treasury, again nearing levels not seen since 2013.
3 Month Treasury Rate data by YCharts
Libor
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Meanwhile, 3-Month Libor rates have also stopped going up as well, believe rates are not likely to rise much further.
3 Month Treasury Rate data by YCharts
Does this seem like a Bond market that sees further rate hikes shortly? No, it does not. Either that or the bond market is predicting a recession is on the way, which based on the 2Q GDP of 2.6 percent doesn’t seem likely. Nor does it look like a bond market that fears a Fed that is about to unwind its massive balance sheet, with rates on the long-end of the declining pretty steadily since the start of the year. Unlock Deeper Insights with Exclusive Member-Only Video Content on The Market Chronicles YouTube Channel – Just $34.99/Month
10 Year Treasury Rate data by YCharts
When put all of this data together you get the chart below. 
3 Month Treasury Rate data by YCharts
The Dollar
What does the currency market think about yield rising here in the US? Judge for yourself.
Inflation
Doesn’t look like a currency market fearing the Fed either. There is a Dollar that melting down, like an ice cube on a stove. While the Euro is surging, something can’t please the ECB.
Inflation? What inflation? Gimme a break is what the market is telling the Fed, they don’t buy it, because there is no inflation.
Bond Markets Secret
You know what else the market knows, a German 2-year trades at -68 Bps, and a Japanese 10-Year trades at 0.06 bps, it knows there are gonna be plenty of buyers around to buy every single bond the Fed sells. That is if they sell them.
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Disclaimer:
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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