Eventually fixed income traders will wish to be compensated for the growing risk in the real economy, pushing yields higher. Dovish forecasts from the Fed will carry less weight with this investor cohort as economic reality sets in. Fed balance sheet reduction = higher yields. Investors would be wise to remember that the Fed is … Continue reading Yields Will Move Higher
10-year Treasury yields sit around 2.72% and will climb higher as the Fed: a.) lifts the Fed Funds Rate and, b.) trims its balance sheet (i.e. quantitative tightening "QT"). There is no scenario in which the Fed executes QT only to have Treasury yields move lower. It is simply a question of supply and demand. … Continue reading Treasury Yields Will Only Move In One Direction
The three-headed Hydra of low labor participation, increased debt levels and higher taxes will cripple U.S. long-term Real GDP growth for decades. Labor participation is not going back to December 2019 levels. To believe that scenario is wishful thinking. For starters, 25% of restaurants and bars are permanently closed. Those jobs are not returning. Second, … Continue reading Brace for Anemic Long-Term Real GDP Growth
We have said it on our TEK2day Podcast and in conversations with some of you that the Fed's next move is to accelerate its QE effort to control long bond yields. This may occur as soon as this month. An interest rate hike is not coming this year in our view. There is far too … Continue reading The Fed’s Next Move Is To Ramp QE, Not Raise Rates.