As we get closer to the next #FOMC meeting on February 1st, the market is betting the hiking cycle is almost done. The chart below shows the spread between 3M and 2 years bonds. It’s at its deepest inversion since the #gfc. It means investors are betting fed funds rates over the next 2 years will be, on average, 63 bps LESS than the will be over the next three months. This is remarkable, particularly in a scenario where markets are expecting two more #ratehikes in the next two meetings. It may imply, if correct, that the fed may have to be aggressive on rate cuts as well. Meanwhile equity markets are digesting corporate earnings and may have reached an impasse as the macro picture clears out.
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