US 2-year yields are up 4 basis points to 3.417%. We were as high as 3.45% but we gave back a bit.
I’m watching bonds closely right now, especially the beginning of the curve for a clearer signal on Powell. It’s FX and stocks it’s much more definitive with the strong dollar and stocks taking a beating (Nasdaq -2%).
The interaction between stocks and bonds could hide a hawkish reaction, so I wouldn’t rule that out, but I would still like to see a stronger signal in bonds.
Elsewhere, the federal funds futures terminal rate is up to 3.81% in March, from 3.78% before the speech. It’s not a big hit. For the end of 2023, it’s at 3.47% versus 3.42%, consistent with Powell pushing to keep rates higher for longer (although that push was certainly not unexpected) .
I think what traders are struggling with right now is the tone of the pitch. It was short and direct. The idea of this was probably to send a crisp message but is it credible? It’s one thing to talk about tough and strong measures, but if the economy falters, will they still be as resolute? Moreover, is there an argument for lower inflation as gasoline prices continue to fall and Europe disintegrates?
At the end of the day, Powell gave his speech, but it will be the economy that will determine where this all goes and I think we all quickly come back to the data.