Good Monday AM,

I hope you had a terrific Mother’s day,

The selling in bonds not only continued but accelerated at the end of last week pushing the 10yr note to an unbelievable (for recent times that is) to 3.15%. It has taken out all support lines and so another close in the 3.15% range opens up the channel to take us to 3.4%. No one wants that.

Keep in mind that with inflation running at 8.5% as reported (and I don’t think that is accurate) the real return on the 10yr treasury is -5%. If you want an explanation on why rates have jumped, that would be it. Inflation is moderating and I can see where it could drop quickly. One of the biggest components of rising inflation was used car prices and those are falling steadily at this point.

I also see the Fed being cautious and not changing its stance on rate hikes through at least the summer though now that the Fed meeting is over, we will get a lot of Fed speak. Fed Governor’s Bostic and Kashkari are both changing to a more dovish stance so presumably, they are seeing signs of inflation moderating. With sell off we have seen since mid-January, bonds are incredibly oversold and today we are seeing the market react positively buying at these levels (for now).

The 10yr is down to 3.07% today and mortgage bonds are up. Stocks are in trouble which is as they should be. If oil continues to trickle down in price below 100 barrel (currently $102), bonds could be in for a bigger run. For now, stay locked. Later this week, we will get the CPI and PPI numbers. Fingers crossed for a real sign inflation has topped.

Please remain safe and healthy.