May 5, 2021
Good morning,
Early yesterday morning, markets got a rate scare from our U.S. Treasury Secretary and former FedChair Janet Yellen in the form of; “it may be that interest rates will have to rise somewhat to make sure our economy doesn’t overheat”. That quote, and from JY especially, sent equity markets into risk off mode and immediately took 1%+ off most indexes. Bond yields didn’t budge – WHAT? That’s right, yesterday we had a call for higher rates from a highly credentialed source and bonds didn’t move. Pundits are labeling the unchanged yields a market mystery this morning. Perhaps they’re right, but my interpretation is that yesterday’s message from the bond market was them giving the benefit of the doubt to the Fed’s “transitory” argument (see Monday’s Morning Note for more on “transitory” if you missed it)
Equity markets are reversing yesterday’s damage this morning and are up pre-open. Crisis averted. Let’s get to Friday’s employment number – see you then.