I´m not able to understand why markets are chasing US bonds here. A month ago they were talking about US yields to 6-7% and today they are buying like there´s no tomorrow at 3,9%, while I can only see that with this easing in financials conditions, the necessary adjustments for inflation downside will be avoided, forcing the FED to stop talking about rate cuts and even to quit the three cuts that they showed to us yesterday. One thought that comes to my mind too is: what was the need for the FED to announce the rate cuts yesterdya without achieving inflation target and further heat up the markets? Don´t they realize that is going against their targets (if really fighting against inflation is their target)? The only reason that I find is to finance the Treasury cheaper for the election year (as Yellen reminds us every day). It´s clear too that I´m a normie and a lot of things are beyond my comprehension. Thanks for this place.
I agree. No reason on rational monetary policy terms. That’s why I’m cautious on bonds after we captured most of the recent rally. Something changed and it could well be political. Enjoy it as long it lasts. Policy error is very likely.
I remember you shared a note on when to buy bonds that explained most of the return was after the first rate cut (presumably bonds moving to price in a deflationary slow-down). the price action so far, hasn't it been a bit unusual compared to past cycles? any views there?
yes it has, and obviously we didn't have the inflation we witnessed over the past 2 years. Every cycle is different. And people are getting excited even though we didn't have a rate cut yet. Deflationary slow-down not a scenario I am entertaining at the moment. Will do a deeper diver on bonds soon.
I´m not able to understand why markets are chasing US bonds here. A month ago they were talking about US yields to 6-7% and today they are buying like there´s no tomorrow at 3,9%, while I can only see that with this easing in financials conditions, the necessary adjustments for inflation downside will be avoided, forcing the FED to stop talking about rate cuts and even to quit the three cuts that they showed to us yesterday. One thought that comes to my mind too is: what was the need for the FED to announce the rate cuts yesterdya without achieving inflation target and further heat up the markets? Don´t they realize that is going against their targets (if really fighting against inflation is their target)? The only reason that I find is to finance the Treasury cheaper for the election year (as Yellen reminds us every day). It´s clear too that I´m a normie and a lot of things are beyond my comprehension. Thanks for this place.
I agree. No reason on rational monetary policy terms. That’s why I’m cautious on bonds after we captured most of the recent rally. Something changed and it could well be political. Enjoy it as long it lasts. Policy error is very likely.
I remember you shared a note on when to buy bonds that explained most of the return was after the first rate cut (presumably bonds moving to price in a deflationary slow-down). the price action so far, hasn't it been a bit unusual compared to past cycles? any views there?
yes it has, and obviously we didn't have the inflation we witnessed over the past 2 years. Every cycle is different. And people are getting excited even though we didn't have a rate cut yet. Deflationary slow-down not a scenario I am entertaining at the moment. Will do a deeper diver on bonds soon.