A whiff of inflation from the Treasury market
We are still in the realm of a whiff (hint, initial indication, a glint in inflation’s eye) of a coming inflationary phase, but the 10yr-2yr yield curve continues to bias toward a resumption of its previous steepening after a long consolidation.
And the nominal 10yr yield (long end of the curve) continues to sport its little bounce pattern. As noted in the last post on the topic, the 10yr’s technical trend bias is down on the intermediate-term, but the pattern is still being stared at by man and goat alike.
Why? Because if the curve steepens and if it does so with rising nominal yields, the indication will be inflationary. If it steepens and nominal yields decline, the indication is deflationary. Either way, a steepening would eventually bring trouble of some kind.
I expect the primary backbone factor of the inflationary case to return sooner or later due to the upward trend break in the Continuum. It’s a big picture inflationary macro. Hence I look at smaller pictures like the above for any hint about the disinflation phase ending and the big picture macro reasserting.
Obviously, investment and trading options for inflation or deflation will be very different. Right now we’re expecting inflation trades coming in 2026, if not sooner (as in already here).
FOMC is up next week and that adds just a bit of drama to the situation. Is the 10yr preparing to bounce at the prospect of an unexpectedly firm Fed (87% of CME Fed Funds trader expect a .25% cut)? Is the pattern just a thing for men and goats to stare at prior to a failure? Will the Fed cut but feature a tough talking Powell?
I don’t have the answers, but I have the charts to alert the short-term and THE chart defining the longer-term. Taking it all week-to-week, following the shorter-term signals within the bigger picture macro, as I’ve pretty much done all year.
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