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What the Heck Happened to the Long End?
This week’s sell-off in long Treasuries corresponds with a subtle shift in FOMC communications. Policy makers are no longer on the speaking circuit trying to justify rate hikes. Rather, they are out trying to justify not hiking faster. FOMC participants’ certainty when discussing gradual rate hikes a month ago has given way to assurances that “we’re still a long way from neutral,” and the FOMC will pick up the pace of tightening if inflation accelerates. Underlying this shift is a fear the economy is growing too fast, at risk of overheating. The lowest unemployment rate since 1969 will only exacerbate this fear. As a result, the terminal fed funds rate might be higher than traders thought, which means the whole yield curve has shifted higher.Plus "The Week Ahead," a preview of next week’s potentially market-moving events.
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