US 2-year yields are up 4 basis points to 3.417%. We were as high as 3.45% but have given some back.
I’m closely watching bonds right now, particularly the front end of the curve for a clearer signal on Powell. It FX and equities it’s much more definitive with the dollar strong and equities taking a beating (Nasdaq -2%).
The interaction between stocks and bonds might be hiding a hawkish reaction, so I wouldn’t rule that out but I’d still like to see a stronger signal in bonds.
Elsewhere, there terminal rate in Fed funds futures is up to 3.81% in March from 3.78% before the speech. That’s not a big move. For year-end 2023 it’s at 3.47% from 3.42%, which fits in with Powell pushing to keep rates higher for longer (though that push certainly wasn’t unexpected).
I think what traders are struggling with right now is the tone of the speech. It was short and direct. The idea of that was undoubtedly to send a crisp message but is it credible? It’s one thing to talk about forceful and strong moves but if the economy falters, are they still going to be so resolute? Moreover, is there an argument for inflation falling anyway with gas prices continuing to decline and Europe disintegrating.
At the end of the day, Powell made his speech but it will be the economy that determines where this all goes and I think we all pivot back to the data in short order.