So the market is supposedly down because the Fed is now tightening but the yield on the 10-year treasury is lower than it was for most of 2013, 2014, and 2015. What am I missing?
Flight to quality, esp from EM?
What bchad said, ultimately flow of funds rules. The fed rate is a reference rate but doesn’t strictly control the 10 year. In the 2000’s the relationship between the 30 yr mortgage and fed decoupled after moving in lockstep for decades. As a result, mortgage rates fell while the fed hiked because of trade flows to China, which had a much higher savings rate which increased demand for investments, particularly in the US. Flow of funds effects like flight to quality will often swamp out other effects and create distortions beyond what may makes fundamental sense. In addition to EM growth fears, high probabilities of yuan devaluation may be bring capital back to US assets.
Beyond that, with fears of EM growth moving to center stage the market may be discounting the likelihood of future hikes.
Per JC Parets @allstarchart, the 10-2 spread is likely to get crushed. Inverted yield curve coming, recession likely.
Not sure if this helps you
Sounds like the logic is that there is a recession possible, therefore the yield curve will invert?
With 10y bonds at 200 bps and the fed funds rate at 25 bps, it’s going to be pretty challenging to get the yield curve to invert. It’s true that being long the 10 and short the 2 doesn’t look like a great bet right now, but that’s more about upward pressure on the 2 than downward pressure on the 10.
I agree bchad, pressure on the 2-yr notes