The next leg of a bond bear market that will probably run at least a couple of decades has begun. From Wolf Richter at wolfstreet.com:
The yield curve moved further toward un-inversion, but not the way it was hoped.
The Treasury yield curve un-inverted by another big step on Friday: The three-month yield has vacillated in the same range for the past 11 trading days following the drop after the monster rate cut. But longer yields surged, starting with the one-year yield, with rate cut expectations getting slashed, and with inflation fears returning. This nearly fixed position at the short end and surge in yields further out on the yield curve caused it to un-invert by another step, but not the way folks had hoped.
Folks – especially the real estate industry – had hoped that the yield curve would un-invert amid a series of steep rate cuts that would bring down short-term yields fast, and that long-term yields would follow but more slowly, so that yields would be lower across the curve than they’d been before the rate cut, but with short-term yields a lot lower and long-term yields somewhat lower, and mortgage rates lower too.
But longer-term yields had never fully bought into the rate hikes in the first place, with the 10-year yield remaining well below the Fed’s policy rates; and then they started dropping in November last year in expectations of lots of rate cuts – reinforced by the labor market tail spin in July and August that has now turned out to have been a false alarm – and very low inflation in the future that has now come back into question.
