There has been quite a lot of movement in yields since last month, so I thought it would be useful to look at an update.
During the last half of June and July, the long end of the curve came down while the short end moved up a little bit. I wish we had an NGDP futures market to check these intuitions against, but I think the best interpretation is that in June the Fed had reversed track a bit and signaled more dovish policy going forward, but then some compromises in that posture began to arise, so while they certainly are more dovish than they were several months ago, some of the optimism that was pressing long end rates higher in June has receded.
The slope of the curve from two years onward has remained relatively stable since then and the movements have mostly been movements in the estimated low point of yields in 2021.
At first glance, rising rates since the end of August are bullish. But, that is entirely due to rising short term rates. The long end has actually flattened slightly compared to the beginning of August (the blue line compared to the pink line). There are obviously a mixture of factors here, and continued strength in the labor market is probably one reason for optimism. But, it seems to me that the net movement of the past two weeks is probably bearish. Less faith that a dovish commitment by the Fed will prevent a bit of a downturn. That would lead me to suspect that the coming decline in the target short term rate will be somewhat tepid and will be associated with a sympathetic decline in the long end of the curve at first, back toward or below the levels of late August.
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