Why yields are crashing further today and potentially the biggest market catalyst of the year or even decade….

by someroastedbeef

As we all know, the ECB essentially said that they going to start juicing up the economy hardcore and by no coincidence, Powell ordered a media blackout barring any Federal Reserve staff member from making any public comments on monetary policy – this is why yields have been crashing at an alarming rate in additional to yesterday’s plunge as investors flocked for the worst possible scenario. (yield’s plummeted yesterday because of a terrible gdp print from germany yesterday and a whole slew of recent economic data misses)

This hasn’t been publicized much, there’s only one article about it but it’s pretty much spooked everyone on wall street as investors continue to panic bid on long-term treasuries – spectator.us/media-blackout-fed-jay-powell/

There are essentially two scenarios that could play out

1) Fed says its time to pump up the economy because recession signals are getting spooky and economic health globally is at a stand-still. they’ll signal further rate cuts (remember they’ve hinted at last month’s meeting that they don’t expect any rate cuts for the rest of the year which is why the market tanked even after cutting rates). This will send equities to the moon as this is what the market wants. The market is currently pricing in at least an additional 50 bps of rate cuts by the end of this year – www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

2) The Fed says that they can’t afford to cut rates without ruining their balance sheet and they’ve essentially exhausted all options to stimulate the economy and that an intentional correction needs to happen for the sake of the long-term health of the economy – obviously this would destroy the market and we might see another black swan event similar to December’s unprecedented decline

The media blackout itself is very weird. federal reserve members typically have blackout periods for specific dates before FOMC meetings but this one is essentially considered permanent until further notice which is unprecedented. in my opinion, scenario 2 is currently the most likely outcome – the media blackout suggests that powell and his crew are seriously considering giving up on cutting rates and believe a correction is necessary for the long-term health of the economy but such implications are so material in nature to the market that any on or off-the-record remarks regarding those discussions need to be silenced

anyways keep your eyes peeled for september’s FOMC meeting and hedge your holdings accordingly. this is gonna be a rocky rest of the year – we also have political primaries coming up, September drug pricing vote which could ruin pharma/biotech and more

stay alive friends


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