A key bond yield points to rate cuts on the horizon this year - but investors aren't sure if that's good or bad news
"It is telling that their recent decline has had little effect on stock prices. Even though Fed Funds Futures are predicting rate cuts by the end of the year, equity markets are not quite sure if that's good news or bad," said Colas."That is a break from the previous relationship between these 2 assets and therefore signals a change in market narrative."
The two-year yield has been whipped around this year, notably jumping above 5% in March for the first time since 2007. The yield shot up after Fed Chairman Jerome Powell indicated stubbornly high inflation could lead policy makers to accelerate the pace of rate hikes – an indication that didn't materialize at its March or May meetings. Stocks sold off when the yield spiked, with the bond market preparing for a steeper Fed funds rate. . An inverted yield curve has been flashing warning signs that the US economy is heading into or has already landed into a recession.
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