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December 12, 2022 | Premium Service | Craig Torres and Liz Capo McCormick wrote on the Bloomberg over the weekend: “Fed’s Long Hold Message At Odds With Market Bets On Rapid Ease.” So true. But the real issue facing investors and risk managers is that investment managers still choose to believe that the FOMC is in control of policy and the key derivatives, the dollar and equity market prices.
When we look at the actual data, a very different picture of US interest rate trends emerges from the narrative in the financial media. The sharp drop in Treasury yields beyond two years suggests a significant shortage of available investments or duration. Indeed, since 2008, dollar swap spreads have traded below Treasury yields, suggesting a persistent demand for dollars coming from offshore. In fact, the global economy now dictates dollar interest rates.
