Yields Spike As Fed Reveals Its Balance Sheet Intentions; The Economy Weakens As Consumer Frugality Begins

Yields Spike As Fed Reveals Its Balance Sheet Intentions; The Economy Weakens As Consumer Frugality Begins

Equity markets fell last week (April 8), but the biggest change was in fixed-income as the Fed's minutes and continued hawkishness from Fed governors continued to put upward pressure on the yield curve. At the week's start, interest rates had inverted (short-term rates higher than long-term rates). As shown in the table, both the 2 Yr. T-Note and 5 Yr. T-Note yields were higher than the 10 Yr. yield. Meanwhile, market commentators were debating as to whether-or-not such inversions, which have been a pre-cursor to recessions whenever they have appeared over the last half century, were prescient or whether "this time is different." The table shows, rates spiked during the week, much more so on the longer end. Note that on Monday (April 4), the 2 Yr. T-Note yield was higher than the 10 Yr. (yield curve inversion), but not so at week's end (April 8). The 5 Yr. T-Note was also inverted early in the week, by 16 basis points (bps). By week's end, that inversion was a much milder five bps. So, what happened last week to cause yields to spike, especially on the longer-end? The answer was the release of the Fed's March meeting minutes on Wednesday.