Market message - Fed behind the curve and needs to play catch-up

The market has given the Fed a message, but it is not clear the Fed has heard it. The U-shaped 2-year Treasury yield tells the story - strong decline as a response to COVID in March 2020 and now a complete reversal before the Fed has taken any action. The curve tightening before any Fed action again sends a market message.

Nonetheless, with a Fed action expected in March and some economists forecasting up to 7 rate hikes in 2020, the question is whether the market has gotten ahead of the Fed and is being too aggressive. The macro opportunity is learning to play the change in market expectations against policy reality. This is something that has been missing from fixed income macro trading for most of the post GFC period.