Technical Analysis

What happens to the yield curve after the FOMC decision?

The very front end of the US Treasury curve is about to move up, with Fed funds to settle around 4.33%.

As you can see, that’s higher than anything beyond 1-year, prompting a wide inversion in 3m bills to 10-years, which is a benchmark that many at the Fed watch as a recessionary indicator. For their part, some of them have now brushed that off because of skews around inflation or have shrugged it off as a sign that only a mild recession is coming.

But I think 2s10s might be more instructive at the moment. After CPI, the market started to price in less Fed hiking and after hitting -90 bps, there was a strong reversal in 2s10s that could be confirmed by a dovish Powell today. So this is the chart I’ll be watching into the weekend. A continued climb would indicate that the Fed ‘gets it’.

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