Jerome Powell, Bond Markets And Yields

Like many in the financial circles of New York, New York and Washington, D. C. who wear suits, have haircuts and take the time to look respectable, Fed Chair Jerome Powell sticks, almost habitually, to the basic script. Wandering off too far from the conventional would be taken as shockingly different so Fed watchers listen closely to the “between the lines” meaning, if there is one.

At the weekend Jackson Hole, Wyoming Economic Symposium, he’s unlikely to veer too far from the basic story on inflation and interest rates: that the stickiness of one may become unstuck, eventually, by raising the other. Nonetheless, those on Wall Street who study nuance and pay attention to the differences of exact word usage may find reasons to write updated “actionable ideas” for clients and bosses.

Some central bank experts are landing on what seems to be a consensus that involves possibly switching from 2% to 3%, at least “temporarily,” as a new target for the rate of inflation. Such an adjustment is said to make it easier for the Fed to eventually (by mid-2024?) begin to initiate a lower interest rate plan.

Powell has mentioned the 2% inflation target previously as a reason to maintain higher rates. An increase of that target would provide cover for eventual rate reductions, according to some economists.

Whether the Fed chair mentions this type of thinking – or those paying close attention to his words find it between the lines somehow – is unknown, of course.

The bond market has spent the year between this Jackson Hole and last year’s in a downtrend as steady as they come. That’s where interest rate concerns show up among those with capitalist appetites: the higher they’re expected to go, the less attractive is the fixed income world.

Bond and Yields Charts:

The daily price chart for the benchmark iShares 20+ Year Treasury Bond ETF looks like this:

The big bond exchange traded fund in late July dropped beneath the former support level (indicated by the horizontal, red-dotted line) which connected the late 2022 low and the March, 2023 low. Note how the 50-day moving average (the blue line) crossed below the 200-day moving average (the red line) in mid-July — just before the real selling kicked in. The bounce now being seen might be connected to expectations about Powell’s Jackson Hole words.

Here’s the point-and-figure chart showing the yield on the CBOE 10-Year US Treasury Yield index:

The yield reached the 2022 high earlier this month and has now backed away slightly from it. It’s easy to see that the trend of yields continues to be upward, a trend in place from the post-pandemic scare lows of 2020, that brief but effective period involving very low rates.

Where these 2 charts end up by the close on Friday and then at the open on Monday may be quite revealing.