December 19th Market Update – A couple observations that merit attention

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-I am currently paying attention to the rising longer-dated US Treasury yields. Bond prices are resting on intermediate support.
-Asset markets continue to rise in the wake of the overall QE actions, loose monetary policy, and lessening trade tensions.
-On the margin, inflation is rising higher on some measures. Many are chalking it up to a better economy, but it may be partly attributable to rising longer-dated yields.

Movement along the yield curve is less a result of economic prospects and more of changes to Fed policy

-Higher bond yields can act as a supply shock to producers. Eventually, the Fed will have to begin to emphasize longer-dated purchases.
-I notice that commodities are beginning to rise slightly. We can say that it’s because of lessening trade tensions and brighter economic prospects, but I think it’s also due to rising longer-dated UST yields.
-If longer yields rise too much and the yield curve further steepens, the Fed will have to once again shift some of the QE to the longer end.

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