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2/7 The Fed talk this week (Williams first then Jefferson) knocked down the probability of an Oct 28 rate hike (blue) from 70% on Mon to 25% Fri. Today's payroll "miss" (below expectations) worked for this narrative. But the 10-year yield (orange) did not follow. https://t.co/q1ovlrSEQ9 3/7 Wait! The 10yr yield depends on more than Fed prob. Maybe other things, like crude, drove it higher. I agree that crude matters. But over the last 3+ weeks, crude (green) is DOWN $2 while the 10yr yield (orange) is UP almost 40 bps. Yields are more than following crude. https://t.co/gZRDcV8dO0 4/7 Now see the 2yr yield (red) and the prob of a hike (blue). NORMALLY, they move together. They did until NY Fed Pres John Williams said there is "no urgency" to hike in Oct. Since then, the 2yr yield has not fallen as much as the decline in the prob would suggest. https://t.co/ZfWCp3EXwb 5/7 I would argue the 2yr yield more reflects what bond traders think/want, while the prob more reflects what the market thinks the Fed is actually going to do. In other words, the chart above suggests the market wants a hike and thinks it will NOT get it? 6/7 The 2024 to 2026 CUTTING cycle (orange) saw HIGHER bond yields (blue). This is the first time in 50+ years CUTS saw HIGHER yields. I've argued this was the market sending the Fed a message that they were too easy. Short rates (funds/repo/bills) needed to be higher. https://t.co/jlKJCFXDWH 7/7 Since the Fed didn't listen and kept cutting rates, yields🚀. If the Fed continues to defy the market by refraining from hiking later this month, could we see more🚀? - "Bond traders will stop panicking when the Fed starts panicking." Start panicking Fed/Williams!