In a speech yesterday, J Powell mentioned that he expected inflation to continue to go down but he will not send signals on any particular meeting and that the committee will monitor both mandates and make decisions meeting by meeting. As of today, the market is betting on the first cut to happen in September. What will that mean for the long end of the curve? If the economy does slow down softly, and there is no intervention by the Fed (QE), we should see the 10 year yield spike and the yield curve to normalize. Bear in mind that rates were abnormally low for a decade after the gfc, and they’re likely to rise as a consequence of restrictive monetary policy. This is also consistent with higher deficits and high levels of debt to gdp, which in turn, should have implications for the other asset classes valuations, since the treasury yield is used as an input to determine the Net present value of expected cash flows. Repricing might be underway.
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Source: Bridgewater associates
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