Technical Analysis

The US 2 year yield has reversed the move from the 2018 high

The higher CPI data has pushed the 2 year yield up by about 15 basis points. The high yield reached 2.974%. That was just shy of the high  yield  from the week of November 5, 2018 at 2.977%

the lap down to the 2021 low has been nearly completed with the sharp move back to the upside. By the way it took about 119 weeks to move from the high to the low, and only 68 weeks to move from the low to the high.

The Fed funds target (upper limit) at the time of the peak in the 2 year yield in 2018 was at 2.25% (right before the Fed hikes for the last time up to 2.5% – see chart below). The current effective rate is at 1.0% with expectations of now a 50 basis point hike for the next 3 months which would take the rate rate up to the 2.5% level. So the market is doing the work of the late Fed as the 2 year yield has priced in a 2.5% target rate currently.

The question is “Is that high enough to squash  inflation  ? ”

Most don’t expect a terminal rate at 2.5%. So there seems to be room to roam.

Fed funds target

Fed funds target

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