The Bond Market May Be Ready To Take Matters Into Its Own Hands

That Fed rate decision was boring. I fought to keep my eyes open and my mind from wandering. It was the same old line about inflation and the Fed being determined to bring it back to target, with little action to back it up. After six years of above-target inflation, you would think the Fed would have a bit more urgency.

I’m glad, though, that financial conditions are supposedly tightening. Yes, the Chicago Fed’s National Financial Conditions Index has tightened so much that you can barely even see the change.

The 10-year Treasury yield crept higher today, up about 4 basis points. We’ll see where it goes from here, but the 10-year yield is very close to breaking out of its downtrend and resuming its upward climb. If the Fed continues moving at such a slow pace, the market may need to do more to tighten financial conditions on the Fed’s behalf. We can’t be certain, but that is one conclusion to draw from today’s non-event of a meeting. The Fed continues to leave the bond market to do its work.

Meanwhile, the 2-year Treasury yield remains in a bull flag pattern and has yet to break out. Tomorrow’s PCE and third-quarter GDP reports could provide that breakout.

That’s going to be it for today. I’m sending this out ahead of the close, and I’m looking forward to having absolutely nothing to do for the rest of the afternoon.

-Mike

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Glossary by ChatGPT

Basis Point: A unit equal to one-hundredth of a percentage point, commonly used to measure changes in interest rates and bond yields.

Bull Flag: A bullish technical continuation pattern characterized by a sharp advance followed by a period of consolidation, potentially signaling another move higher.

Chicago Fed National Financial Conditions Index (NFCI): A weekly index measuring financial conditions across US money markets, debt markets, equity markets, and the banking system, with positive readings indicating tighter-than-average conditions and negative readings indicating looser-than-average conditions.

Downtrend: A technical price pattern characterized by a sequence of lower highs and lower lows, indicating sustained downward movement.

Financial Conditions: The overall availability and cost of financing in an economy, influenced by interest rates, credit spreads, asset prices, and lending conditions.

Gross Domestic Product (GDP): The total monetary value of goods and services produced within an economy over a specified period.

Personal Consumption Expenditures (PCE) Price Index: An inflation measure tracking changes in prices paid by US consumers for goods and services, used by the Federal Reserve to assess progress toward its inflation target.

Treasury Yield: The annualized return investors receive from holding a US government debt security, which moves inversely to its market price.

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