Something very important is happening in the bond markets

The chart in the carousel below goes back over four decades and it shows the path of 30-year yields in the bond markets after the first Fed cut in a persistent cycle. In most cases, 30-year bond yields fell by 10-50 basis points in the first two to three months after the first Fed cut. Today, 30-year yields in the bond markets have increased (!) by 40 basis points since the jumbo Fed cut in September. The only historical parallel is 1995. 1995 is the only known case of Soft Landing after a Fed hiking cycle. Why would the parallel hold today? As in 1995, the idea is that: 1) Nominal growth remains robust 2) The Fed eases policy regardless of solid economic performance 3) Such cuts are stimulative of more nominal growth down the road 4) Therefore, long-term interest rates go up despite Fed cuts We are still a long way from such a set-up, but the obvious risk is clear. Will the Fed lose control of the long end of the yield curve?

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