The FOMC stuck to its script this week, kicking the can and keeping rates steady.
Everyone was expecting the news. But the market wasn’t expecting Fed Chairman Jerome Powell (the man, the myth, the legend) to completely dash its hopes of a March cut.
Strangely enough, rates continue to fall on the news – even as markets adjust to the possibility of the initial rate cut now coming in May.
Before you run out to buy US treasury bonds, check out the overlay chart of the US 2- and 30-year yields:
There’s a big difference.
The 2-year yield is churning sideways, reflecting the market’s expectations of the FOMC’s next move – nothing in the foreseeable future.
On the other hand, the 30-year yield is turning lower. Unlike the short end of the curve, the long end gauges the prospect of long-term economic growth.
What do we do with this information?
Buy long-duration bonds! That’s a much better option than sitting around dreaming of an impending recession. It’s simple – and far more productive.
Plus, the 30-year yield tucked tail at a logical level:
Notice the 30-year stopped rising in the same vicinity as its Oct. ‘22 and Aug. ‘23 peaks – an excellent level to trade against.
But we don’t directly trade interest rates. We trade their corresponding bonds.
