Everyone paying attention has been stunned by the steady rise in yield of the 10Y treasury (now having reached 5%). The question is what will that yield do in reaction to a rate rise by the Fed at its September meeting. Common wisdom would say that, even though the Fed rate is a short-term rate, it's anti-inflationary push will raise rates across the spectrum. We say, "Hold on sparky." It's a real possibility that the bond market will actually react by having longer rates start to retreat. You might have to be a Paul Krugman to understand or you can read the next sentence. If the steep rise in the 10Y yield is the result of inflation expectations due at least in part to the Fed's having done nothing for a long time, then the Fed's setting out on a course to tackle inflation could receive a warm welcome from the bond market in the form of long-term yields' dropping. Just remember, if that happens, you heard it here first.
[EOP]
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