For the first time since October 2007, the yield on 2Y US Treasury bonds has topped 4.00%…
…having soared over 60bps since Fed Chair Powell gave his hyper-hawkish speech at Jackson Hole…
Meanwhile, the terminal rate for Fed rate-hikes has risen to 4.52% this morning, expected in March 2023…
Do we really think The Fed can get there without folding to political pressure or flip-flopping to abate risk-asset carnage?
As we noted earlier, how do we think Elizabeth Warren is going to react to this?
When the Fed hikes to 3.25% from 2.50%, it will be paying banks $460MM in daily interest on IOER/Reverse Repo.
When the Fed hikes to 4.25% by year end, it will be paying $600 million in daily interest to BANKS.
Think that won’t be a political issue? Think again
Finally, which would you rather own – 2Y notes backed by the US govt paying 4% or the S&P 500 paying 1.7%?
TINA is dead… and remember all of this is priced into the rates market already…
What is priced in right now:
+75bps in Nov,
+50bps in Dec.
-> 4.49% in March pic.twitter.com/G28WSGnz3A
Maybe not so much the stock market.
Meanwhile, the German yield curve is the most inverted… ever…