Monday, June 17, 2024

Sensitivity to macro announcement surprises not always the same

 


Asset prices will respond to economic surprises. This is expected. When new unanticipated information enters the market, prices will adjust; however, the sensitivity to these surprises is not consistent. For example, 10-year yields are more sensitive to surprises now than for almost any time over the last two decades as measured through a regression against the Citibank surprise index.

Given the uncertainty about inflation and growth and the current Fed policy of being data-driven, any change in major economic data will generate a greater yield reaction.  This sensitivity will continue until we get new clarity on the direction of rates from the Fed. The sensitivity will then return to its longer-term average. Surprises must be conditioned on the macro environment. 

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