Discussion
As discussed this morning, Financial Crisis 3.0 is very likely in the works. To add some color to that, below is a chart of the TIPS 10s yield versus the 3y/10y UST curve and the S&P 500. TIPS 10s are on the move alongside the 3y/10y curve. Again, this is precisely what happened ahead of the UK LDI and SVB crises, which I have dubbed financial crisis 1.0 and 2.0.
Importantly, we now have confirmation the Fed is ok with more crisis. In his Bloomberg op-ed this morning, former FRB New York President Bill Dudley closed with the following paragraph directly on the heels of outlining a 4.5% 10-year Treasury note yield:
“To some extent, this is what the Fed needs to happen, to slow the economy and get inflation under control. That said, it’s been so long since long-term rates have reached such heights that further havoc is all but guaranteed. There’s just one possible silver lining: With any luck, a reawakened bond market might force US politicians to finally get the country’s fiscal house in order. The sooner the better.”
Financial Crisis 3.0 cometh.