Yields up, rates down

This is a segment from the Forward Guidance newsletter. To read full editions, subscribe . Treasury yields were once again on the rise Wednesday while US equities struggled to recover from a rough day of trading yesterday. The US government’s monthly 10-year Treasury note auction on Tuesday drew the highest yield since 2007: 4.68%. Benchmark yields on 10-years hit a high of 4.73% Wednesday morning, a level not hit since last spring. Zooming out, since the Fed started its rate-cutting cycle in September , yields on 10-year notes have increased from around 3.7% to 4.7%. It’s an inverse correlation not typically seen, at least if you look back upon the past 10 easing cycles. What gives? Well, first of all, we aren’t in a typical easing cycle. Normally, rate cuts signal an approaching recession. This time, the Fed is lowering interest rates because central bankers believe inflation is sufficiently declining — or at least, they did. FOMC members’ inflation expectations have risen from 2.6% to 2.8% for 2024, and as such, their median projections for cuts to the fed funds rate has decreased by 50 basis points. Futures markets are now pricing in a 95% chance central bankers hold rates steady at their next meeting later this month. Plus, bond traders are reacting to the new (old) administration headed for the White House in less than two weeks. Today’s selloff (remember, bond prices and yields move in opposite directions), is likely linked to rising concerns about Trump’s incoming tariff policies . So, it’s a strange situation with perhaps a reasonable explanation, but we’re keeping an eye on the situation. The latest Fed minutes — set to be released this afternoon — should also give us more insight. Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter . Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the Forward Guidance newsletter . Get alpha directly in your inbox with the 0xResearch newsletter — market highlights, charts, degen trade ideas, governance updates, and more. The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.