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Over the last few months, I’ve focused on the yield action of the U.S. Ten Year Note (TNX). That’s because TNX is the benchmark for 30 year mortgages and an excellent signal as to what the bond market is thinking about inflation and what the Federal Reserve may do with interest rates in the future.
As things currently stand, the key yield range has been 3.6-3.85%. If TNX falls below 3.6% decisively it would signal that bond traders are betting on a recession. A move above 3.85% would be a sign that inflation fears are rising.
This morning’s inflation data, the Fed’s favorite indicator the Personal Consumption and Expenditures gauge (PCE) showed a general flattening, although wage pressures persist. On the other hand, the savings rate is rising and consumers are starting to cut their spending.
The salient part of the price chart is that TNX had moved higher most of this week but the PCE news put a ceiling on the rise right at the 3.85% yield area.
What that means is that for now, the bond market seems to have breathed a sigh of relief regarding inflation. That's good news until it changes.
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