From the desk of Willie Delwiche.
There are plenty of ways to take apart and dissect the move in the bond market that accelerated over the past week. From an investment perspective, if the 11% YTD decline in TLT holds, Q1 statements are going to be a jolt for investors who were led to believe that bonds are a portfolio stabilizer and that you can't lose money in Treasuries. From a market perspective, bonds are putting pressure on the Fed. It’s not yet showing up in the CPI, but Fed officials claiming not to see any inflation pressure strain credibility. It's not the rise in yields at the long-end of the curve that will catch the Fed’s eye, but the move higher in the belly of the curve. The short-end remains anchored by Fed actions, but this week saw 3-year, 5-year, and 7-year yields spike. The 5-year yield is approaching resistance at early 2020 levels, while relative to the 2-year yield (which is responsive to Fed policy) the 5-year yield is at its highest level since 2017. For all the talk of central bank omnipotence and bazookas, the bond market > Fed balance sheet. The Fed may need to adjust its approach.