![]() The 3–5-year sector has to price the paper deluge from the government to pay for its splurges. The front end has to price what is likely to be a very hawkish BoE outlook on a combination of fiscal view and Fed catch-up. The UK debt market is in an absolute mess without a mop in sight. 10yr yields are up 24bps, 30yrs up 29bps even as BoE announced a new short-term funding facility to minimize volatility when its emergency bond-buying programme expires later this week. But economic storm clouds are building that could foreshadow a global recession and crush the capital markets on that eventuality. I suspect that last week's roller-coaster ride, which saw the biggest two-day rally in the S&P 500 since April 2020 before plummeting to September lows, should keep investors on the defensive until there is a meaningful sign of inflation cooling the feverish demand for goods eases.Īt this stage of the rate hike cycle, the 70s taught the Fed there are enormous risks of easing prematurely. So, traders will be more cautious about falling into the bear trap again. Markets have been down this dovish pivot road before, and investors have been consistently too quick to price a fed pivot. Still, stocks bounced off the lows after a slightly dovish skew in remarks from the Fed's Leal Brainard, who suggested the board sees "tentative evidence of some rebalancing" in the labour market, "paying close attention to global risks," household excess savings "is lower than previously estimated." No panic, but instead, there was a painfully slow and steady drift lower in classic risk-off action. US equities were weaker Monday, S&P down 0.7%.
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