2 year treasury

[NitroZ7]

This is insane. The yield has dropped almost 100 basis points in 3 weeks. I have never seen a drop like that before. The bond market must be pricing in a real hard landing.

[boneil]

I have a hard enough time understanding the stock market never mind the bond market.

I feel like all the action is in the bond markets and the stock market is just stuck waiting, correcting over time.

[Charles Prestridge]

https://apple.news/ACrvfubgqT1Ce6snbM_bGuw

This morningstar article gives their explanation.

[apenland01]

Good article, worth the time to read it...

[zelmo]

I have a hard enough time understanding the stock market never mind the bond market.

I feel like all the action is in the bond markets and the stock market is just stuck waiting, correcting over time.

Both the bond market and the stock market are historically driven by fear and greed. The big difference is that there has been massive intervention in the bond market by the government since 2008 which drove interest rates to near zero. There wasn't much to fear. Now that the Fed has changed course the bond market is back to big swings as market players try to figure out (guess) where rates will be in the future.

I started buying 2, 3, and 5 year notes at each auction at the end of last summer. The coupon on the 2 year at the February auction was 4.625%. I decided that the big swing in March due to the bank issues was an aboration and I skipped the March auction. They set the 2 year coupon at 3.875%. Only time will tell if I made the right move.

[zelmo]

https://apple.news/ACrvfubgqT1Ce6snbM_bGuw

This morningstar article gives their explanation.

That article has a lot of good information, but it has a major flaw in my opinion. It states the the big drop in the 2 year yield over the last few weeks is a harbinger of rate cuts. When? Sure there will be rate cuts at some point but not now. Yields are down because of the idea that the Fed will go easy fighting inflation to avoid a full blown banking crisis, or if they don't, that they will cause a major problem headed by that crisis. There is also a flight to safety. Another scenario is that the Fed, under pressure from the WH, will declare that the 2% inflation target is arbitrary and that it should be more like 4 to 6%. That would allow them to pause the hikes sooner but rates won't come down as the higher inflation rate will have bond investors wanting higher yields.

[NitroZ7]

That article has a lot of good information, but it has a major flaw in my opinion. It states the the big drop in the 2 year yield over the last few weeks is a harbinger of rate cuts. When? Sure there will be rate cuts at some point but not now. Yields are down because of the idea that the Fed will go easy fighting inflation to avoid a full blown banking crisis, or if they don't, that they will cause a major problem headed by that crisis. There is also a flight to safety. Another scenario is that the Fed, under pressure from the WH, will declare that the 2% inflation target is arbitrary and that it should be more like 4 to 6%. That would allow them to pause the hikes sooner but rates won't come down as the higher inflation rate will have bond investors wanting higher yields.

This makes sense since if they hold at present short term rates then inflation may be elevated and if inflation is elevated then we should see some steepening at the long end of the curve as people demand higher yields for locking in longer duration due to their inflation expectations changing. It looks like a tug of war right now in the bond market as to which way this is headed.