2024-05-22 13:30:00 ET
Summary
- Fed policy has a heightened data dependency, leading to increased volatility in the bond market.
- The UST market’s narrative has shifted toward the possibility of rate cuts, but the Fed does not appear to be in a rush to implement them based on current inflation trends.
- Even though rate cuts remain the odds-on favorite for later this year, investors should heed the tenor of recent Fed-speak, which reinforced the notion of rates being higher for longer.
By Kevin Flanagan
There is no question that Fed policy remains the primary force driving the money and bond markets for the third year in a row. There was some speculation heading into this year that if Powell & Co. embarked on a widely anticipated rate-cutting spree, perhaps the U.S. Treasury ((UST) ) arena could take a collective breath and just let the policymaker “do its thing.” However, as we have discovered through the first nearly five months of the year, the best-laid plans have not been realized. Instead, I believe that they have been replaced by a Fed policy that has a heightened data dependency, and according to my math, data dependence equals volatility in the bond market....
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Data Dependency = Volatility