While Treasury yields have rallied sharply over the last three weeks (since the end of August) it looks like the Treasury yield curve steepened a little last week as short-term maturity yields rose, while the 10 and 3–year yields fell.
What does this tell us about the upcoming monetary policy announcement due to be released this Wednesday, September 17th ?
The high probability of a 25 basis point move lower to 4.125% seems almost a disappointment now given the benchmark payroll revisions.
However the futures haven’t priced in anything resembling 50 basis points or even 37.5 basis points for Wednesday.
Thursday morning, don’t be surprised if some stock selling is seen, given we are right back to where we’ve been the last year, with fed funds at 4.125% priced much higher than the rest of the Treasury yield curve.
US Market Overbought ?
Love these one-page updates from Bespoke on all the notable US equity indices.
Yes, the general US equity markets are largely overbought.
Somewhat surprising is that the QQQ’s are the least overbought of a plethora of US indices.
Summary / conclusion:
FOMC announcement week is always interesting, and this week will likely be the same.
You’d have to think the equity markets are due for some downside, but is that accompanied by Treasuries that rally after Wednesday afternoon, or decline in value.
Certainly the benchmark payroll revisions would have to lead many to conclude that the short-end of the Treasury yield curve will likely steepen.
The 10-year Treasury yield traded down to 3.88% on the Liberation Day stock market decline in April ’25. It’s bouncing around near 4% presently and closed at 4.06% on Friday, September 12th.
On the CBOE TYX yield chart, the 10-year yield looks very oversold, and the chart anyway looks like the 10-year Treasury yield could rise back into the 4.20% – 4.30% area.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results.
Thanks for reading.