Friday Chart Book
Real Rates / Curve Narratives / Fed Pressure and French Politics
August started with a bang but is set to end in a rather non-eventful manner. NVDA results didn’t cause a tremendous spark for either bulls or bears, but hey, life goes on.
Rate markets have caught a bit of a bid, and we have seen quite a sizeable yield curve steepening during the month. We now have a reversal signal flashing, which I shared with paying subscribers through the Substack chat. We are now awaiting payroll and inflation data to establish the extent of the cycle. So far, the cycle seems again predominantly loaded in 2026, under the assumption that a new governor will push the cutting button several times. SOFR Z5/Z6 spread is at -79, with two cuts already priced into the end of the year. Just looking at economics, this pricing seems a bit too much for my taste.
It’s interesting to examine real rates, with 2-year reals (2-year OIS vs. 2-year inflation swaps) trending lower. From the highs in mid-2024, we have now seen a 200-basis-point rally, now hovering just above zero. Admittedly, short real rates don’t influence the wider economy much, but they give us an indication as to where Fed policy rates are.
I remember when the Fed used the argument that real short rates were rising in the first half of 2024 in order to prepare for rate cuts. This time around, however, inflation expectations are catapulting rates lower. This is inadvertently supporting risk assets in the process for now.
5y5y real rates, however, have actually gone up since the last cut in December 2024 and have moved in a narrow range since. This obviously speaks to the quite sizeable term risk premium we have witnessed as yield curves steepened.
Our buy-and-hold portfolio for this year has ticked up to a new high, now standing at +16.5% YTD, without touching a single line item all year. And yes, that is in USD terms.
A reminder that you can now also use my models in TradingView scripts, which I made available for subscribers to use on their charts. This is not free and incurs an additional cost. These are my momentum, reversal and intra-day models I am often referencing.
If you are interested, ping me an email with your TV username. Note that only paying subscribers will be granted access. No exceptions.
Below, you will find Macro D’s latest thoughts on the independence of the Fed and France’s latest political crisis. In addition, you will find the updated chart pack of all 250+ charts across the global macro universe.
Have a wonderful weekend!