Fear The Talking Fed! US Treasury And MBS Returns Get Hammered As Fed Signals Monetary Tightening (Mortgage Rate Rises And 10Y-2Y Yield Curve Flattens To 8.8 Basis Points)

Confounded Interest ^ | 06/12/2022 | Anthony B. Sanders

[Browns Ultra Fan]

The Federal Reserve is making up for Bernanke and Yellen’s “too slow to remove” Fed stimulus policies (QE1 – QE3) and Powell’s Covid-related QE4. Now The Fed is trying to remove the stimulus in a (misguided) attempt to cool inflation. Remember, the dramatic rise in prices was caused by more that Fed stimulypto, it was also caused by Biden’s executive orders driving up oil, gasoline and natural gas prices and the massive Federal spending bills signed by Biden.

The result of The Fed’s jawboning about undoing Fed stimulypto is take away the punch bowl. But the results are troubling. Both the total return indices for US Treasuries and Agency Mortgage-backed Securities (MBS) have declined dramatically since inflation has been rising (highest in 40 years) and The Fed is expected to crank their target rate by February 2023 to 3.448% (The Fed Funds Target Rate currently stands at 1%).

While the 10-year rate is rising rapidly, the 2-year Treasury yield is REALLY rising fast.

And the yield curve (10Y-2Y) is down to +8.819 basis points as The Fed signals tightening.

And with rising 10 and 2Y Treasury yields, we are seeing the fastest rise in mortgage rates since 1981.

[Browns Ultra Fan]

Even Biden admitted that inflation is here to stay and eat it, suckers! What a terrible leader.

[Regulator]

"it was also MAINLY caused by Biden’s executive orders driving up oil, gasoline and natural gas prices and the massive Federal spending bills signed by Biden

Fixed

[rigelkentaurus]

crank Fed Funds to 3.5%? LOL!!! Check out the Taylor Rule. When comparing current inflation to the 1980 mess cause by yet another moron Rat, it makes no sense to say we are at 8.6% CPI inflation which compares to 1981. That is silly. The CPI calculation used when Carter and Reagan were in office was substantially changed. Check out Shadow Government Statistics. They use the same methodology in use in the 1980s and calculation the “shadow” CPI. It is 17%. Applying the Taylor Rule, Fed Funds should be 20%, not 1% moving to a scary 3.5%.