US Treasury notes: breaking out, breaking bad
Yesterday’s FOMC meeting marks another step along a cliff-top walk amidst low clouds. Jay Powell’s Fed appears sure-footed and united in its pursuit of an undefined, neutral monetary policy stance, but there are hazards ahead. The Fed has pencilled in another 5 doses of 25 basis point funds rate increases and lifted the so-called terminal rate ever-so-slightly. But the big interest rate event this autumn is a potential explosion of 10-year bond yields in the face of inflation surprises from the domestic labour market, the supply chain and from the volatile crude oil market. Treasury notes depend significantly on international investor support, which the US president seems determined to undermine by his incendiary tweets. The escalation of tit-for-tat tariffs threatens an untimely interruption to valuable supply chains at a seasonally sensitive time.
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