Over the last year and a half, I’ve predicted (and defended) the five major inflection points in Treasury yields. Until January of last year, I had never tried to make calls with this level of precision. I previously thought the primary trend (business-cycle) was the best that one could reliably call and tinkering within it was a detriment to performance. My thinking has evolved.

I was early to some of the inflection points, wasn’t completely sure of others, and thought some magnitudes would be different, but the pattern lends credence to my unique framework with Treasury yields. I focus on the business cycle, economic data (LDEI), Federal Reserve narratives, and market extrapolations but, just as important, I leave out a long list of reasons used in the industry that I’ve eliminated from research over a 25-year career. I am succeeding at creating a cohesive and flowing narrative to the Treasury market using a small basket of reasonings with historical value.

The bond market will inevitably humble me in the future, but Treasury yields are singular with their long price history, history of commentary, correlation to economics, and no credit spread. Unlike stocks or any other asset class, Treasury yields have a chance to be predicted. There is more to uncover in this direction.

Below are numbers referencing the chart above, the direction I thought rates were going with ▲ or ▼, article title and link to the quote, proximity of the quote to the local yield peak or trough, reason for the turn, and quote(s). Supporting quotes from within the secondary trend are shown with (a,b,c…).

1. ▼10/18/2023, Views from the Top, day of the 2-year cyclical yield peak and one day before the rest of the yield curve made cyclical peaks, reason: extrapolation build-up,
“Dramatic Treasury sell-offs, expectations of permanently higher rates, fiscal fears, and continuing economic strength are hallmarks of past cyclical Treasury bond yield peaks and happening now” and “…with the Fed becoming determinedly neutral in the face of strong economic data, the yield curve de-inverting after a huge inversion, the stock market now weakening, and Leading Economic Indicators falling for 17 straight months, the bond market is in the vicinity of a peak. The economy and Fed will determine how low rates go in the upcoming recession, and the supply/demand arguments will be put away until the next time there is a big rates sell-off.”

a. ▼12/4/2023, Things are changing,
“The Beige Book hints that 2/3rds of the country is in recession. If that becomes clearer from the economic data, the Fed will end up easing sooner without ever seeing “higher for longer” through.”

b. ▼12/8/2023, Recent yield behavior is consistent with historical yield peaks,
“I think cyclical yield peaks were made for the Treasury market in October (on 10/18 for the 2-year and 10/19 for the 5 to 30-year.) This is based on the Fed pausing after a rate hike cycle, the yield curve de-inverting, leading economic indicators continuing to fall, a dramatic sell-off in the Treasury market with terrible sentiment, the labor market weakening, and inflation falling.”

2. ▲1/2/2024, The bond market has gotten ahead of the economic data, 3 trading days after 10-year yield trough, 8 trading days before the 2-year yield trough, reason: economic data,
“…as the Fed becomes more vocal after the holidays, unless the December economic data (released this month) is as negative as October’s, the Fed will likely continue to retract some of the December meeting’s dovish impression and it will dawn on the market that a March rate cut is not as certain as it is priced for now (76% chance.) I expect interest rates will bounce somewhat higher before they resume falling again.”

a. ▲1/17/2024, All about Waller,
“Federal Reserve Governor Christopher Waller started the idea in late November that the Fed would be cutting rates soon but he took that away yesterday, likely causing a near-term inflection point towards higher short-term Treasury yields.”

b. ▲4/10/2024, Why the 2yr yield rose so much after CPI today,
“Today’s CPI number represents the breaking of a dam, where the Fed’s hope to cut rates soon and often will now require a downturn in the economic data to be justified. Rates have risen so much because the Fed’s 3-rate cut thesis is being abandoned; at least until the economic data tell a different story.”

3. ▼4/26/2024, An economically driven Treasury-sell-off, one trading day after the 10-year yield peak and two before the 2-year yield peak, reason: economic data,
“Because strong economic data and hotter inflation has caused interest rates to rise, weaker data will cause them to fall. We may have seen the first hint of this with yesterday’s weak Q1 GDP figure (1.6%), but more data is needed to know.”

a. ▼5/3/2024, Recent economic data has weakened, 3 trading days after the 2-year yield peak,
“None of this weakness is of the severity of what last October’s data looked like which caused the Fed to turn 180-degrees dovishly, but it is notable as the first cluster of weak top-tier economic data since January. Taken together with Jerome Powell’s re-focusing of the bond market on rate cuts (from anything but leading up to the meeting), I think that the interest rate back-up since January is over if inflation and consumer spending begins to moderate too. We get the next CPI inflation and Retail Sales report on May 15th.”

b. ▼5/15/2024, Economic data weakens further,
“As I wrote earlier this month (5/3), “I think that the interest rate back-up since January is over if inflation and consumer spending begins to moderate too.” The economic data showed this today. I think Treasury yields made local peaks at the end of last month (2yr @ 5.04%, 10yr @ 4.71%.) and will generally trend lower with Fed cutting expectations moving sooner.”

c. ▼7/11/2024, The inflation bulge was temporary,
“There is very little holding the Fed back from turning more dovish now (I think this matters more than when the first cut will be), except to not let the market get ahead of them as happened last December. Mary Daly, President of the San Francisco Fed, is the first to say cuts will now be appropriate today.”

d. ▼7/26/2024, On the Fed meeting and Jobs report next week
“The unemployment rate is expected to remain the same, but if it rises 0.1% to 4.2%, it will trigger the Sahm rule. This would suggest we are in a recession. Whether we are in one or not (I don’t think we are yet, because 3 of 4 coincident indicators haven’t peaked yet), this will cause the bond market to price in more cuts.”

4. ▲9/17/2024, A 50 basis point cut may be the final ingredient for yields to rise, one day after the 10-year yield trough, reason: economic data,
“… the gap between economic data and how much Fed cutting the bond market has priced-in (as shown through the 2-year yield) continues to widen. The bond market has priced in more weakness than is visible in economic data.”

a. ▲10/4/2024, On the jobs report and recession,
“The strong jobs report today (+254k) caused the dam to break on what I’ve been writing about for weeks with Treasury yields. The 2-year yield is higher by 22 basis points today. With the 2-year now at 3.93%, the bond market is priced for the Fed to cut rates to 3.25% by March of 2026. This would be a 25-basis point cut at 7.5 of the 12 meetings in between now and then. This seems like fair pricing for the conditions given the Fed’s desire to slowly get rates back to neutral. But I’ve never seen a big pop like this be limited to just one day. I expect yields to continue rising for a while (particularly at the front-end of the yield curve) until negative economic data reasserts itself. The narrative from Austan Goolsbee, president of the Chicago Fed, and Jerome Powell is that the Fed is going to cut rates back to neutral (somewhere around 3%) with or without economic weakness. But Fed hawks are going to quickly worry about inflation after today and try to un-do the favorable financial conditions (low Treasury yields).”

b. ▲10/23/2024, The Beige Book is better and the 2-year yield isn’t done rising,
“Raphael Bostic, president of the Atlanta Fed (second biggest by GDP) and representing one of the only three districts contracting (albeit “slightly”), is advocating for the Fed to take a pause in November or December, which shows how little the contraction in Atlanta must be. This, combined with continued good economic data (retail sales last week), the fact that the 2-year is still 30 basis points below where it was before the “week of fear” in late July/early August (stock market plunge, Fed Pivot #2, and weak jobs report), and that the September CPI report wasn’t as benign as thought, tells me the 2-year yield has further to rise. There are 41 basis points of lowering priced into the 2-year over the next two meetings, which could become 25 basis points if Raphael Bostic and/or the data convinces the committee of his point-of-view. This would likely bring the 2-year up into the 4.20%s – 4.30%s.”

c. ▲12/23/2024, “Well the data happened”,
“Economic data has stalled out for nearly two months now. It may take a little while for the Fed’s lagging hawkish narrative to permeate sentiment and for negative data to become clearer into January, but I don’t think there is much further upside for interest rates.”

d. ▲12/30/2024, Economic data is changing and yields will soon follow,
“Economic data has stopped rising, but extrapolation is in high-gear since the Fed’s 12/18/2024 SEP projections and because economic data has been mostly strong for five months. The longer a trend goes, the longer it is extrapolated. See recent examples here, here, and here. I see the “extrapolation-phase” as the trailing part of a narrative.”

5. ▼1/10/2025, The labor market isn’t stabilizing, one trading day before the 2-year yield peak, and two before the 10-year yield peak, reason: extrapolation build-up,
“I think that this secondary trend of interest rates upwards since October will peak this month. Its narrative feels like it has saturated its potential, paving the way for hints of weakness to take-over.”

    Interest rates peaked in January when the release of December’s weak CPI report broke what I call the “extrapolation phase” but the “totality of the data” as shown in the LDEI didn’t and so I haven’t supported this secondary trend yet. The 2-year, which I use related futures of to create opportunity akin to the long-end of the yield curve with a tighter correlation to economics, fewer uncertainties, and more movement, has been in a tight range since November. When economic data joins the trend, I will likely support it.