This is not a declaration that inflationary pressures are gone or that rates across the universe are heading lower. This is however a look back into some of our recent discussions such as the following:
BOJ's YCC Of Course Makes JPY Sacrificial Lamb - Can't Have It Both Ways
Bitcoin As Pristine Collateral
Is The Fed Even Shrinking Its Balance Sheet?
The above is a chart essentially for June of 2022 showing the yield on the ten year note. Rates broke out above the 3.00% threshold and then made a run for 3.50% after a hot CPI report. However, since then they have steadily declined as more concerning data about future economic growth comes out on a daily basis.
The market doesn't see the Fed doing much more than one or two rate hikes if even that. The bond market is discounting a recession, weakening labor markets, and overall economic uncertainty and lack of excitement. Yes, inflation is a problem, but the majority of it is directly or indirectly connected to oil. Bonds are telling us the power of a looming slowdown (which already started in Q1) overwhelms concerns about inflation.
Which brings us back to Bitcoin. The Fed hasn't actually shrunk it's balance sheet, ECB is trying to plug holes with certain spreads blowing out, and the BOJ is truly inside the Twilight Zone now literally printing ridiculous sums of currency to execute YCC. Bitcoin.
This brings us to that same annoying question we keep asking. Russia is out as Biden stole their treasuries and is attempting to choke off the Russian economy. China has been curtailing purchases of UST for several months now. Japan has its hands full to say the least with YCC. Europe is a mess.
Do you have $4 Trillion PER YEAR in spare change to help out?
Who is going to buy all the UST to keep the system chugging along???
Answer: The Fed (a good portion of it).
