Good Friday AM,

Bonds healthily shedding some recent gains.

It is never a straight line up or down and seeing a little profit taking is ok.. in fact, it is a positive sign. I believe this is an important step before another leg to better rates. The data today isn’t super meaningful and fell on both sides of the fence, Import prices and export prices came in low. Very low and very bond friendly. And that’s after being down quite a bit last month. This plays well into the inflation discussions, but these numbers don’t mean a lot on their own because they show up in CPI, and in the Fed’s favorite inflation gauge, PCE but still, they don’t go unnoticed. Consumer sentiment on the other hand blew past expectation. I don’t know who the University of Michigan is speaking to, but it is hard to believe that people feel better and more confident about the economy now than any time since October 2021.. Think about that. While there was plenty of stimulus and money floating around, people felt worse about the economy than they do now, huh? Despite the mostly weaker data, I don’t think the fed moves off their clamoring of raising rates on the 26th. I think they should, but this is more about keeping face than it is a need in the economy. I think we will see the 10yr note drop to 3.67% soon and with it, rates down another .125-.25.. no guarantees but that’s how the tea leaves look today.

I know I am constantly talking on inflation; the subject is just that important. If inflation drops, rates will drop (ahead of the Fed doing anything) which will take a lot of pressure off inventory but add more pressure to prices. With sellers coming to market, so too do buyers but those will be better problems to have than the lack of inventory we face now.

Two snippets to share on inflation.

Bob Michele, J.P. Morgan Asset Management’s Chief Investment Officer for Fixed Income, says the global bond rally is just starting. He has long believed the US economy will enter a recession as the Federal Reserve went too far in raising interest rates, saying that the deeply inverted US yield curve spells trouble and the Fed will be forced to cut rates by the end of this year. “More and more indicators are at levels you only see in recession. We are buying every backup in yields,” said Michele. “The considerable central bank tightening is starting to bite hard in the real economy.”

And

A little over a month ago, we asked why the Federal Reserve shouldn’t just forgo the well-telegraphed ‘skip’ and just hike in June. Now it’s time to ask the inverse question: with headline inflation back to 3% and signs that the so-called super core segment is cooling, why not hold rates steady at July’s meeting?

Both questions have the same answer: policy makers said they would, and now they have to deliver.

“Even with today’s better data, you have to marry yourself to the idea that the Fed’s going to hike in July,” Rick Rieder, BlackRock Inc.’s chief investment officer of global fixed-income, told me and Vildana Hajric on Bloomberg’s What Goes Up podcast. “It would be a big credibility problem if after they paused and people on the Fed committee have suggested we’re going to get more two more hikes — how do you not go in July if that were the case?”

Bond traders seem to agree with that logic. While swaps pricing shows that a hike later this month is seen as all but certain, bets the central bank will continue raising rates beyond July are quickly receding. That trend accelerated after data Thursday showed US producer prices barely rose in June, another sign of cooler inflation. That’s led to some particularly violent repricing at the front-end of the yield curve: two-year Treasury yields are currently hovering near 4.63%, after piercing above 5.1% just last week.

Please remain safe and stay healthy, enjoy the weekend and first, make today great