Market Journal: 3y/10y Inversion Deepens
Fed Call very much in place, as the 3y/10y inversion deepens alongside better-than-expected economic data.
Discussion
As discussed in yesterday’s Fed Watch, it looks like the Fed could be in the process of laying the groundwork for an even higher terminal rate than projected in the June SEP, and today’s move in rates and the curve alongside hotter-than-expected economic data confirms that is the high probability scenario. Lagarde’s hawkishness this morning could very well have been a coordinated precursor to a hawkish Powell tomorrow. We shall see. All I know is that the 3y/10y UST curve inversion, currently around 117%, is very much in the territory of becoming a problem for risk assets.
In addition to the above-mentioned move in rates and the curve, today’s move in stocks, while powerful, was accompanied by a HY CDX showing signs of bottoming out here toward the end of the day and just so-so breadth beneath the surface.