Good Morning on this Terrific Friday,

Bonds are seeing a little buying and a small reprieve from the shellacking we’ve taken these last weeks.

Today’s buying is some follow through from yesterday’s late day Fed commentary (below) which showed that the Fed is not committed necessarily to seemingly endless rate hikes. Let’s hope markets continue to calm down and we can continue to pick up some of what was lost. The 10-yr is back below 4% which is a great way to end the week.

“I would be very pleased if the data we receive on inflation and the labor market this month show signs of moderation. But wishful thinking is not a substitute for hard evidence in the form of economic data.”

Fed governor Christopher Waller

An interesting perspective from Bloomberg:

The whole Treasury market moved to yields above 4% as a relentlessly robust US data pulse met a similarly robust rhetorical response from policymakers. Federal Reserve Bank of Atlanta President Raphael Bostic, currently deemed on the dovish side by Bloomberg’s spectrometer, is mulling whether the US cash rate will need to go beyond the 5% to 5.25% range he has endorsed as necessary to tame cost pressures.

Markets are already pricing in strong odds for a 5.5% peak, and they’ve backed away from the expectation that the Fed will pivot to rate cuts this year to favor the idea it won’t ease policy before 2024. Meanwhile, the trader who bet big in early February on a 6% cash rate has begun unwinding the position, which has already doubled in value since it was put on.

That number four cropped up again in Europe. For the first time, investors boosted bets on the ECB’s peak interest rate being higher than 4% after inflation in France and Spain came in unexpectedly hot. Core CPI growth for the euro area came in at a record high later in the week to underscore the case earlier laid out by the central bank’s Chief Economist Philip Lane. He said the ECB might hold borrowing costs at a high level for some time once they reach their peak.

It all made for a rough start to March after February saw investors hit the sell button across assets. Tumbling bonds completely unwound the gains they made during the market’s best January on record.

All the same, the fact that yields are at the highest level in a decade keeps investors clinging to the hope of a strong bond-market rebound at some stage in 2023. There’s also the consolation of the actual income now on offer.

For the first time in more than two decades, some of the world’s most risk-free securities are delivering bigger payouts than a 60/40 portfolio of stocks and bonds.

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