A quick look at the yield curve will show interest rate expectation in a state of flux. With lower inflation, fears about the labor market, and a Fed that pointed to a change in policy, there was a clear drop in interest rates especially around two years. You get a higher than expected print in the employment number and there is a wholesale revision in rates with more than a third of the drop being reversed out the curve. So much for recession fears, let's get back to inflation fears. So much for 50 bps cuts, let's start to worry about debt issues.
Does this make sense? The reversal is an adjustment to an overreaction to the Fed in September. This goes back to the basics of forward guidance. With a data dependent Fed unable to articulate how to look at data in context, you get misdirection and mistakes by investors. How do investors play this environment. Assume that rapid changes represent overreaction and expect that actual rates should show smoother moves.
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