Good Friday AM,

Bonds are having a god day as focus continues to turn toward next weeks Fed meeting and f\thoughts of recession instead of inflation. The markets are expecting a .75 hike next Wednesday and another .5 in September both are already priced into current rates. The question becomes what happens next and with inflation coming down and GDP negative, it is hard not to consider the Fed may be cutting rates before year end. Markets will as always trade on the expectations so we should see a reprieve in rates soon.

Below is some insight from Bloomberg this am which resonates with me.

Three is the magic number — well, 3% for the 10-year US Treasury yield, as Bloomberg’s Liz Capo McCormick points out. Despite the drumbeat of inflation talk, the 10-year US benchmark has failed to stay markedly above the 3% level for long after dropping back from about 3.5% in mid-June. That reflects haven demand amid fears that Federal Reserve tightening will end up triggering a recession. So it seems like 3% marks the level where “fear of missing out” — a moniker that became popular for pandemic-era stock buying — comes to the Treasury market. “Similar to how many spent H1 22 kicking themselves for not being short enough, or exiting shorts too early, long-end investors may start to feel the window for adding bonds at 3.00%+ this cycle closing — we think a real money FOMO bid might start kicking in,” wrote Blake Gwinn, head of US rates strategy at RBC Capital Markets.

Market pricing indicates a 75-basis-point hike is the most likely outcome at the Fed’s July 26-27 meeting. Traders anticipate a peak in the fed funds benchmark of around 3.5% either late this year or early 2023. Officials indicate the neutral rate is somewhere around 2.25% to 2.5%, so if market pricing is right, borrowing costs are headed to restrictive territory that can hurt the US economy. Little wonder, then, we are seeing longer-end buying that’s helping to cap rates at around 3%.

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