"Don't fight the fed"

<mod note> Please keep the thread (and forum) free of Fed / election conspiracy theory.
 
I do not put much stake in a single monthly employment report. My guess is it gets adjusted downward.

But let's not forget the more predictive data points like quits and the dearth of full time jobs added. Overwhelmingly the new jobs are part time.It is part time employment that is rising. Full time employment is declining. These may be 2nd or 3rd jobs for someone to deal with higher prices. Typically this is a recession indicator.

The overall trend is more important than individual data points.
 
Funnily enough, the day I posted this thread the 10-year began a relentless selloff, going against the fed. I guess the bond market feels that the fed cut too much too soon.
I wouldn’t be too quick to label this as “fighting the fed”. The fed rate cuts will directly only effect the short maturity end of the yield curve; the longer the maturity, the more indirect the effect of the fed & the more the bond market (& its supply/demand dynamics) will control the rates. Imho, the inverted yield curve should get more consideration. I don’t see how the fed alone can directly “un-invert”. However, let’s say the bond market decides the fed cuts signal tame inflation & unemployment, translating into a need to increase rates on longer end & a more (historically) normal yield curve. That is, the bond market agreeing, not fighting the fed.

Supply/demand in the bond market isn’t uniform across all maturities. When the fed changes, there will be winners & losers among lenders/borrowers. Consumers might see lower credit card interest, but also higher mortgage rates. Importers & exporters might be impacted in opposite ways. Will US Treasury change which maturities it tries to borrow at? Not a conclusive list, but hopefully enough to see what I’m getting at.

I do think there is room for some course correction without trying to time the market. For example, say someone plans to have a “under 2 year” bucket & is deciding between CDs & treasuries. If rates are expected to rise, perhaps they go for shorter maturities to take advantage of reinvestment and/or liquidity.

It might also be of interest to consider fed action other than rate cuts; ie quantative easing, etc. These did extend the fed impact. Could someone get ahead by considering all fed actions? I took a quick look using Morningstar at a couple of investments: BND (Vanguard’s “Total” bond etf) & DODIX (Dodge & Cox Income mutual fund). I don’t have exact comparison data, so this isn’t real precise. BND is currently showing average duration of 6 years, DODIX of 6.3. Morningstar monthly data goes back to January 31 1989. Investing $10K in each then, had them about $700 apart on October 31 2008. However, if you look at the end of last month (September 30 2024), DODIX has about $18200 advantage.
 
... Imho, the inverted yield curve should get more consideration. I don’t see how the fed alone can directly “un-invert”. However, let’s say the bond market decides the fed cuts signal tame inflation & unemployment, translating into a need to increase rates on longer end & a more (historically) normal yield curve. That is, the bond market agreeing, not fighting the fed.
.....
The traditional measure of an inverted yield curve is the 2 yr versus the 10 yr, which is no longer inverted.
 
The traditional measure of an inverted yield curve is the 2 yr versus the 10 yr, which is no longer inverted.
There are 2 camps on this -- whether 2 year or 90 day vs 10 year. Matters not to me which is traditional; doesn't affect my point. I'm too lazy to go see when the curve uninverted using the 2 yr, but I think it was reasonably close to the time of the rate cut. I'm sure someone will chime in if not.

I don't mean to imply the bond market & fed are always in lock step. There will be disagreements, particularly on very short time periods. Perhaps, bond market is fighting now. I still think it is more complex than looking at a yield dot instead of a yield curve!

ymmv -- happy investing
 
I would say they are seldom in lockstep, though definitely related. Fed rate direction in particular is a large impacter of bond prices all along the curve

Also, it is easily possible to "time" the bond market. It is not a bad thing. Quite the contrary.
 
I don't know about all this fighting, but I do know that 22 minutes ago the 2 year note auctioned at 4.125% (with a discount, effective 4.130%).

This is well above last month's 3.5%, and August's 3.75%. This is after a dramatic drop from July's 4.375%. The 10 year responded (on the market) with a bump to keep things non-inverted, barely.
 
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