Welcome Back, Bond Bulls. Your Absence Was Noted.
A very spooky chart pack and what it means for rates and bitcoin.
Dear readers,
As we close in on the fourth consecutive 75 basis point interest rate hike from the Federal Reserve, there has been a shift in the markets. In today’s post, we’ll welcome back global bond bulls and explain why the recent action in rates is so important to understand.
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Today’s topics
German 10-year yields are down over 50 basis points since Friday. This is despite and perhaps due to the ECB’s second consecutive hike of 75 basis points.
US Treasury 10-year yields are down 40 basis points since Friday.
The expectation for the Fed’s policy rate by mid-next year has fallen by 30 basis points since Friday.
Ok, enough already, what happened on Friday?
We believe the spread between 2s and Fed Funds, which we have been watching all year, will invert by the December FOMC meeting, ending the hiking cycle before 2023 begins.
What are the implications for bitcoin?
The ECB admits it’s almost done
Today, the ECB raised rates to 1.5% but was quick to note that most of its accommodative policy has been withdrawn. German yields are looking right past hot headline inflation in Europe and directly at the global slowdown due to restrictive monetary policy and the end of cheap pandemic-era money. The action is swift, and although the global bond market was tricked into rallying during the summer, this rally feels more real because it is supported by policymaker rhetoric. Look at this week’s decline in German yields, and note the strong break through the uptrend in place since August:
Trend shifts occur at the margins, and I believe this move is very telling. And it is only one example.
The spread between German two-year yields and the ECB’s deposit rate is down to about 25 basis points and could decline even further to put pressure on the ECB to pause, especially after its admission today: