The anomaly of interest rate movements
- Are markets not believing the Fed?
- The 10 year treasury dropped from a high of 4.195 on 1/25 to 3.942 today, 01/31 – the day the Feds and Chair Powell was clearly signaling no chances of a rate cut at the March Fed meeting.
- Intuitively the yields should have gone up – is there something else at play.
- I believe Yellen’s dovish nod on 1/29 was the main catalyst for the drop in rates and clearly that seems to be overriding Chair Powell’s comments after the FOMC meeting.
Simply, if the government decides it needs to borrow more, it doesn’t get to borrow at cheap rates; the private sector will naturally charge more, which means interest rates go up. Now if Powell’s boss signals that borrowing will be a) less than anticipated this quarter b) borrowing intervals and amounts will be regularly spaced out, it’s a clear dovish signal that the government doesn’t want interest rates going up in an election year.
