{"id":29714,"date":"2018-01-14T13:15:19","date_gmt":"2018-01-14T18:15:19","guid":{"rendered":"http:\/\/olduvai.ca\/?p=29714"},"modified":"2018-01-14T13:15:19","modified_gmt":"2018-01-14T18:15:19","slug":"bond-market-smells-inflation-begins-to-react","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=29714","title":{"rendered":"Bond Market Smells Inflation, Begins to React"},"content":{"rendered":"<header>\n<h3 class=\"entry-title\"><a href=\"https:\/\/wolfstreet.com\/2018\/01\/14\/bond-market-smells-inflation-begins-to-react\/\">Bond Market Smells Inflation, Begins to React<\/a><\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p><strong>Inflation expectations now exceed the Fed\u2019s target.<\/strong><\/p>\n<p>The 10-year US Treasury yield breached 2.5% on January 9 and hasn\u2019t looked back since, closing on Friday at 2.55%. The three year yield closed at 2.12%, the highest since October 2008. The two year yield, after breaching 2% on Friday intraday, closed at 1.99%, the highest since September 2008.<\/p>\n<p>Bond prices fall when yields rise. And the selloff in three-year maturities and below shows that the short end of the bond market is reacting to the Fed\u2019s rate-hike environment.<\/p>\n<p>The moves in the 10-year yield, however, defied the Fed in much of 2017, with the yield actually dropping. With long-term yields falling and short-term yields rising, the yield curve \u201cflattened,\u201d and there were fears that the yield curve would \u201cinvert,\u201d with 10-year yields dropping below two-year yields \u2013 a scenario that has proven dreadful in the past, including just before the Financial Crisis. But recently, the 10-year yield too has begun to respond.<\/p>\n<p>Though the \u201cnew Fed\u201d in 2018 hasn\u2019t fully taken shape yet, with several key vacancies still to be filled, there is already tough talk even among the \u201cdoves.\u201d And that\u2019s where tough talk matters.<\/p>\n<p>On Thursday it was New York Fed President William Dudley who outlined the \u201ctwo macroeconomic concerns\u201d he is \u201cworried about\u201d: \u201cThe risk of economic overheating,\u201d and that the <a href=\"https:\/\/wolfstreet.com\/2018\/01\/12\/markets-still-blow-off-the-fed-dudley-gets-nervous-fires-warning-shot\/\" target=\"_blank\" rel=\"noopener\">markets are blowing off the Fed<\/a>. In the end, the Fed \u201cmay have to press harder on the brakes,\u201d he said.<\/p>\n<p>On Friday, it was Boston Fed President Eric Rosengren who told the <a href=\"https:\/\/www.wsj.com\/articles\/feds-rosengren-more-than-three-rate-increases-likely-necessary-this-year-1515791722\" target=\"_blank\" rel=\"noopener\">Wall Street Journal<\/a> that he expected \u201cmore than three\u201d rate hikes this year to get this under control before it\u2019s too late. \u201cI don\u2019t want to get to a situation where we have to tighten more quickly,\u201d he said, citing specifically the \u201cfairly ebullient financial markets,\u201d and the risks of waiting too long.<\/p>\n<p>&#8230;click on the above link to read the rest of the article&#8230;<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Bond Market Smells Inflation, Begins to React Inflation expectations now exceed the Fed\u2019s target. The 10-year US Treasury yield breached 2.5% on January 9 and hasn\u2019t looked back since, closing on Friday at 2.55%. The three year yield closed at 2.12%, the highest since October 2008. The two year yield, after breaching 2% on Friday [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[5185,303,426,3650,2721,4254,4255],"class_list":["post-29714","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bond-market","tag-fed","tag-inflation","tag-us-federal-reserve","tag-us-treasuries","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29714","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=29714"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29714\/revisions"}],"predecessor-version":[{"id":29715,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/29714\/revisions\/29715"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=29714"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=29714"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=29714"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}