Treasury Rates: July 28th, 2022
Daily changes in the US 10 Year Treasury rates are the blue bars while the red line is the 14-day cumulative change in rates: 28bp decrease. Note the decreases in rates BEFORE the Fed increased the Fed Funds rate 75bps on July 27 For the blue bars it is unusual to have changes of greater than 0.10 in a single day and 0.20 is VERY unusual.
The Fed did increase the Fed Funds rates by 75bp on July 27 and signaled further increases to come at their next meeting on Sept 21. They are making a very clear statement they are aggressively going after inflation.
The Yield Curve for short terms remains steep while the longer term (5+ years) is INVERTED. Could we be in for a short-term period of stagflation? It will take at least 12 months for the Energy Prices to “fall” out of the CPI 12-month rolling calc. In the meantime, we can have a slowing economy with higher interest rates while the Fed fights inflation. This is what an inverted yield curve is pointing to.