Closing Thoughts for the Week

The minutes from the Fed’s March meeting indicate that it’s about to hit the gas on quantitative tightening. The 2-year note blew through the 2.5% level, but it’s interesting to see that the yield curve has uninverted again. For months, bonds have been signaling the risk of a potential recession. Now, it appears that stocks might be jumping on board. It still doesn’t look like we’re there yet though.

I think it’s also time we keep an eye on long-term Treasuries. Is the sell-off in long-term Treasuries is finally over? I think it might be. I think we’ll begin seeing investors moving back into long-term Treasuries and we could start to see the return of more traditional risk-on/risk-off relationships. The idea of deflation should now be back on the table.

It’s a little tough to figure out where this bullishness for equities is coming from. The broad rally in risk assets from two weeks was not present again this past week. The big action, again, was in the Treasury market, where the sell-off continues as investors price in more aggressive action from the Fed. This type of violent move in Treasury yields should not be considered normal.