The market is pricing in immaculate disinflation

August 20, 2024
-FCHFX

August 20, 2024 at 04:17PM
One way to look at the drop in Treasury yields is that it’s signalling trouble in the US economy but with stocks working on an 8-day winning streak, that’s tough to square.

Maybe the answer is more-simple: The market sees no recession but steady rate cuts and a return to the low-inflation/cheap-money era.

That’s a great dynamic for both bonds and stocks and it’s underscored by the decline in 5-year breakevens back to 2%.

In addition, the market is pricing in a return to 3.00% Fed funds in 2026 but that leaves a strong ‘Fed put’ in place in case things in the economy deteriorate.

This article was written by Adam Button at www.forexlive.com.

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