Macro Observations

Ever since the Fed announced its pivot in the 4th quarter of last year by forecasting three rate cuts, volatility in the equity markets has been virtually non-existent. That degree of market calm can be good for equity sentiment in the near-term, but it can also result in some dangerous complacency. But as is the case with almost every trade in history, it works until it doesn’t.

Investors believe that the Fed still might have the ammo to cut multiple times yet in 2024. Predictably, long-term Treasury yields have turned volatile over the past week after a series of new reports sending conflicting signals. The real question now is are these numbers a signal that the disinflationary trend is resuming or are they a one-off aberration? Let’s look at a few numbers & charts to try to figure out what’s happening here.

Investing in long-term Treasuries has mostly been an exercise in futility over the past 3-4 years. While it’s easy to refer to this period as simply a “bond bear market”, it was much more nuanced than that. We’ve seen Treasury yields behave in a volatile fashion many times over the past few years, but the bond market could be signaling that the momentum for higher rates is fizzling out. That’s why I believe the duration bear market in bonds is coming to an end.