The Treasury Market Does Not Follow The Fed
5, 7, 10, 20 and 30-year Treasury yields have spiked as the Fed has lowered its overnight borrowing rate (Fed Funds rate).
Why? The answer is because investors in longer maturity Treasury securities can see that Government spending is out of control and that the Fed has done little to fight price inflation. In fact, the Fed continues to inflate the money supply (which is the original definition of “inflation” that the Fed worked hard to change). Treasury investors know that price inflation will persist, thereby eroding the real value of Treasury security interest payments to those investors. Treasury investors want more of a hedge against inflation - they demand higher Treasury yields and will continue to sell or not buy Treasuries until yields find what each investor believes is fair compensation for holding Treasuries.
At some point the Fed will try to manipulate the long-end of the yield curve with a forthcoming, yet-to-be announced, QE program. The Fed could simply refuse to buy Treasuries which would force fiscal discipline on the Federal Government. However, Powell lacks Maria Corina Machado’s courage, so he will cave again and kick the can down the road.
I am 100% in favor of ending the Federal Reserve. Americans should demand that Congress repeal the Federal Reserve Act of 1913 and allow the equity and fixed income markets and the broader economy to function without Government intervention.
In the meantime, the equity market will eventually crack should long yields continue to rise.
