The market is pricing in immaculate disinflation

One way to look at the drop in Treasury yields is that it’s signalling trouble in the US economy but with stocks working on an 8-day winning streak, that’s tough to square.

Maybe the answer is more-simple: The market sees no recession but steady rate cuts and a return to the low-inflation/cheap-money era.

That’s a great dynamic for both bonds and stocks and it’s underscored by the decline in 5-year breakevens back to 2%.

In addition, the market is pricing in a return to 3.00% Fed funds in 2026 but that leaves a strong ‘Fed put’ in place in case things in the economy deteriorate.

This article was written by Adam Button at www.forexlive.com.