The Big Bond Market Event Wednesday Is at Treasury, Not the Fed
The Federal Reserve’s policy statement is setting up to be the No. 2 event on Wednesday, with investor focus instead likely to be on the Treasury Department’s new borrowing plan, due hours ahead of the interest-rate decision.
The so-called quarterly refunding announcement will reveal the extent to which the Treasury will ramp up sales of longer-term debt to fund a widening budget deficit. Those securities have been tumbling for weeks, even amid signals from Fed officials they’re “at or near” the end of rate hikes.
The selloff has sent yields to the highest levels since before the global financial crisis — making longer-term Treasuries more costly for the government. Investors are eager to see whether officials maintain the pace of increase in longer-term debt sales they announced in the August plan. Bumpy auctions of some securities in recent weeks have only increased that focus.
The yield curve is not normalizing for the normal reasons. Usually the fed lowers the short end below long term yields. This time around, the fed is keeping short rates high and long term yields are rising to meet them. This means the future value of money and debt costs are going to shit.
“Goldman’s economists don’t see Fed QT ending completely until early 2025.”
That’s a crazy perspective. If true it would be a repeat of 2022 without the excess liquidity. Something will break again and force the end of QT. Probably the bond market.
The collapse in Treasury bonds now ranks among the worst market crashes in history, per BI.
— unusual_whales (@unusual_whales) October 30, 2023
h/t Reduntu