Rates up, risk down, macro influx (same as it ever was)…

George Goncalves, MUFG Head of U.S. Macro Strategy, walks us through the latest price action where the normalization of rates out the curve has finally caught the attention of broader markets like stocks and credit. The so-called bear steepening of the curve (when long-term rates move higher in yields and in a quantum larger than short-term rate movements) is driving some serious financial conditions tightening. As George says, the bond market is tightening for the Fed. George still believes that the last Fed hike was in July and that all of these volatile market moves will result in them no longer hiking in 2023. That said, until long-term rates find stability (and better yet consolidate into a tradeable range) and until the U.S. dollar stops going up, these major swings may continue in his view. In the past, to see a quick reversal in U.S. Treasuries, there would need to be a much larger and deeper risk-off in stocks and credit. Overall George remains cautious and reminds us that it’s been “the same as it ever was”, higher rates do matter.