I'm a perma bull as you can see from my post history and it is my belief that financial conditions will get tight so fast, Fed will have to back-pedal and stop the tightening close to winter or start cutting rates after the winter.
HOWEVER, right now it's an undeniable fact that after the WSJ leak, the market is giving 0 percent chance to anything less than 75 bps hikes for the next two meetings, and 10% chance to one 100 and one 75 hike. Three 75 bps hikes are at 35% chance and EOY expectations are around at 375 – 400. You can check it out at CME Fedwatch.
But when we look at the US02Y we see that it's at 3.30 and US10Y is at 3.38.
I think this means the treasuries have not yet priced in the EOY expectations in Fed rates and if that is true due to the DCF valuations should further fall until Fed rate expectations start falling and 10 Year yields start following.
I want to be clear I'm only looking at this from the DCF valuations side and not including economic conditions to this post.
What do you think?
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