A unique opportunity is upon us. The FED has signaled to the market that it will not raise rates in 2019 and they say there will only be one hike in 2020.
Anyone who has been in the game long enough will tell you that the bond market precedes the equity market. I would just like to expand that it precedes all markets including the Federal Funds Rate “market.”
The Federal Funds Rate (FFR) is what the FED uses to “fight” recessions.
The rest of the yield curve (2-year, 10-year, 30-year bonds) has many pricing mechanisms, but if the FFR is moving then they will move with it.
The smart money sees that the FED has ceased rate hikes, and that the next logical step will be rate cuts. With this in mind, they will begin to front run the FED’s move.
We do not know exactly when the FED will go to zero again with the FFR, but what we do have is a strong conviction towards that it will cut rates when bear market and recession talks heighten.
Pay attention to the beginning of the smart money forecasting the inevitability of the FED going to zero again. Once the FOMC release occurred on Wednesday at 2PM, the 10-year and 30-year tanked.
For historical reference, you will notice that the 10-year and 30-year tend to initially lower in anticipation of the cut to zero. This usually occurs during the pause phase. Then, the rest of the move occurs once the rate cut announcement is made or becomes fully baked into expectations.
You may say well why would I want to buy a 30-year for a 2.87% interest rate. The answer is not that you will hold it to maturity, but you will sell it when the market yield for 30s is 2-2.5%, thus locking in a capital gain.
Do you own research. This is not trade advice.