Happy New Year! And Treasuries are off to fast start with investors bailing on Treasuries and buying stocks. AND the expectation that The Fed will raise rates 3 times this year.
The 10-year Treasury Note yield rose above 1.60% this morning.
And the US Treasury 10Y-2Y curve rose to 80.601 basis points.
Fed Funds Futures data is showing 3 rates hikes in 2022. May, September and December.
The Fed Dots project is definitely showing an upward trend in the Fed Funds Target rate with FOMC member forecasting the median target rate to be above 2% by 2024.
Of course, Fed reverse repo activity grew to an all-time high (but it is expected to pare-back).
How about mortgage rates? I expect mortgages rates to rise over 2022 as the 10-year Treasury Note rises.
While The Fed has been acting like Santa Claus with monetary easing since 2008, they are predicted to act like Bad Santas in 2022.
6 months of telling inflation in transitory stories. Now you know why.
Cautionary note: The Fed is likely to protect economic growth and ignore inflation. So I expect FOMC will continue to reinvest prepayments into Treasury and MBS, pro-rata to the current portfolio.