Yahoo Finance Rising Two-Year Treasury Yields Indicate No Worries Over Trade Disputes
Stocks are trading mixed at the start of a second day of congressional testimony from U.S. Federal Reserve Chairman Jerome Powell. Yesterday, he ignited a rebound rally in the U.S. Dollar and a firm trade in U.S. stock indexes after reiterating that the U.S. economy is strong enough to warrant at least two additional rate hikes this year and more to follow in 2019.
More importantly, while he acknowledged that tariffs are a negative for the global economy, per se, he offered no specific impact on the U.S. economy at this time because of the lack of data on the issue. The Fed is a data dependent organization and really isn’t into the speculation business so I believe Powell was right to give a general comment on tariffs from his Economics 101 class notes and save the speculation for economists and analysts who continue to refer to Trump’s rhetoric on trade as “noise”.
Powell may have been trying to say that “the tariffs are here so deal with them.” Furthermore, he may have been implying that “We’ll take a more serious look when or if the issue shows up in the economic data.”
The views of other Fed speakers this week expressed a similar tone toward tariffs and trade disputes. Once again, they all seem to be sending the same message that tariffs can be bad, but they are offering no concrete proof at this time that they are being a drag on the economy.
I tend to look at the price action in the Treasury markets for the true assessment of the economy rather than to try to make a financial decision based on politics or what Trump said or did like others. Frankly, I don’t know how anyone can make a trading decision based on the emotions of the President. Some analysts continue to try to make everything the President says or does a trading issue, but I’ve never seen it baked into a trading system.
You’ll know more about the state of the economy if you watch Treasury yields because, in my opinion, debt investors are the smartest guys in the world. So as long as yields continue to rise, I have to conclude there are no major worries in the economy at this time. This doesn’t mean there won’t be in the future. And if you want to get an idea of when something major could hit the U.S. economy, start monitoring the yield curve, or futures market spreads.
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Earlier today, the short-term two-year Treasury note yield rose to its highest level in nearly a decade on Wednesday. This news should speak volumes for the strength of the U.S. economy so lighten up on your concerns over trade wars. When they do become an issue, the news will show up first in the debt markets.
Two-year notes yielded 2.624 percent earlier on the day, their highest since August 6, 2008, before the rate moved down to 2.61 percent.
This article was originally posted on FX Empire
