The spread between the 3 month and 10 year treasuries is narrowing
The spread between the 3 month and 10 year currently sits at .18%. Two months ago, it was 2.27%.
A quick definition of the yield curve from financial times, " The US yield curve in particular — thanks to the central position of the dollar in the global financial system — acts as a kind of barometer of investors’ collective wisdom about the future path of the world’s largest economy, and has a strong record in signalling downturns before they arrive."
It goes on to say, "Russia’s invasion of Ukraine, which sent commodity prices spiraling higher, has added to the inflationary pressures faced by the Fed and its counterparts around the world. However, soaring energy costs are also expected to sap growth rates, raising questions about how high the Fed can push rates before it has to stop. In effect, the inversion of the curve implies that some investors think that, after a period of rapid tightening, the Fed will be forced to reverse course."
I am of the belief that the oil market has deep structural supply problems meaning that energy prices will remain higher for longer. I don't think inflation will be easy to put a lid on. It may take the fed pushing us into a deep economic recession to get prices under control. If the Fed is forced to reverse course on interest rate hikes before it can get inflation completely under control, we may be in store for a prolonged stagflationary environment possibly resulting in the need for a second tightening cycle.
tl;dr Bear Market Rally
Submitted August 05, 2022 at 01:29AM by Blondeandblemished
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