The Fed Smacked The Yield Curve ➡ How We're Prepping Subscribers

THE YIELD CURVE FINALLY INVERTED.

For the first time since 2019, the 2-10 (10-year US Treasury minus the 2-year) briefly inverted.

Apparently the Fed didn't like inflation's lack-of-transitory joke, so they royally smacked the yield curve flat with Fedspeak.

Since the March FOMC meeting:

• The Yield Curve briefly inverted then ticked up to 5 bps, down roughly -54 bps
• Rate Hike Expectations have shot up to 8.36 hikes through the rest of 2022, an additional +2.33 hikes
• The market expects a Fed Funds rate of 2.43% by year-end

The market is taking the Fed at its word ("this time is different"?... Sure) and buying into the hike-hype. The short-end end of the curve (2-year) is rising on Fed rate hike expectations, while the long-end (10-year) is falling on slowing growth expectations.

Alas, it seems the Fed has decided the 2 year-10 year U.S. Treasury yield curve is unimportant, with Fed "Economists" discarding the usefulness of the curve as a leading indicator:

"We have provided statistical evidence indicating that the perceived omniscience of the 2-10 spread that pervades market commentary is probably spurious," authors Eric Engstrom and Steven Sharpe write. "We argue there is no need to fear the 2-10 spread, or any other spread measure for that matter."

In the spirit of sticking with our perma-pair trade, Long Hedgeye vs. Short Fed, we'd like to highlight an excerpt from one of Hedgeye Macro & Financials analysts Josh Steiner's recent Early Look notes:

"Yield curve inversions have a long track record of predicting equity market corrections and broader economic slowdowns. Often outright recessionary, but always decelerating. The current backdrop appears to be no exception. The Fed’s policy process has tended to follow a predictable and recurrent pattern for over 70 years: Be too easy. That begets energy inflation, which tends to creep into broader headline inflation. The Fed then begins to tighten its policy and ultimately pricks the energy inflation bubble it created, but, in doing so has 10 for 10 times caused a recession".

With economic growth slowing and disinflation (read: **decelerating**. Disinflation does NOT = deflation) taking hold domestically, we're positioned for a Deep #Quad4 in Q2, the worst economic regime.

"You don't hike into #Quad4." - The Chief, Hedgeye CEO Keith McCullough

So how are we preparing our subscribers for potential impending Fed bombs on the markets?

WE'RE HOSTING OUR Q2 2022 MACRO THEMES CALL ON THURSDAY 3/31 AT 11:00AM ET

Macro Pro & Institutional subscribers will join Hedgeye CEO Keith McCullough on HedgeyeTV for our Live Quarterly Macro Themes Calls, the cornerstone of Hedgeye’s positioning for the upcoming quarter(s).

This flagship presentation features a 100+ slide deck along with our Risk-Manager-in-Chief's hour-long breakdown. Previously only available to institutional subscribers, we’re proud to be joined by our Macro Pro's on the call.

Here's a sneak peak at our Top 3 Macro Themes for Q2 2022:

1. USA #Quad4 in Q2
2. #Disinflation Isn't Deflation
3. Long Gold & Silver (and Miners)

To learn more about Macro Pro and get access to the presentation/slidedeck, contact support@hedgeye.com.