The Fed and the market aren’t seeing eye-to-eye.
In a chart circulated on Tuesday, Deutsche Bank’s Torsten Slok noted that as the Fed is marching towards its first interest rate hike in years, the bond market has been driving yields lower, not higher.
“FOMC members say they may hike rates in six months time but long rates stopped listening to the Fed earlier this year,” Slok wrote.
“Instead, rates markets started focusing on stories unrelated to the US economic data such as European growth, EM buying of Treasuries, secular stagnation, US real money buying fixed income etc. … In my view, the Fed does not want to repeat the scenario in 2004-2006 when they hiked rates and long rates stayed low; expect more Fed speak and Fed working papers talking about the term premium and what long rates normally do when the Fed begins to hike rates.”