Market Trends & Yield Curve Analysis - The yield curve is flattening, with 10-year Treasury yields decreasing while 2-year Treasury yields increasing on the week [1] - The shift in the yield curve's steepening trend occurred around July 15th and 16th, following the release of CPI (Consumer Price Index) and PPI (Producer Price Index) data [2][3] Currency Market Dynamics - Euro is outperforming, reaching a one-year high against the Yen (euroyen) [3][4] - The dollar is underperforming against the Yen (dollar yen) [4] - Euro is hovering near a four-year high against the dollar [5] Factors Influencing Euro Strength - Concerns about fiscal prudence and austerity measures in Europe, even after the election, are contributing to the Euro's strength against the Yen [4][5]

Interest Rate and Inflation Expectations - The market is pricing in both potential rate cuts and higher inflation, creating conflicting signals for the Federal Reserve [3] - The analyst believes inflation has bottomed for the year, referencing break-even spreads as an indicator [2] - The analyst anticipates no rate cut in the immediate term, but acknowledges the possibility of a 50 basis points cut if labor market conditions deteriorate [4] Treasury Market Strategy - The firm is currently positioned for no rate cuts, with a "Steve Burner trade" involving being long on the two-year Treasury and short on the ten-year Treasury [5][6] - The firm has been largely ignoring the 30-year part of the Treasury market, anticipating further upward pressure on rates in that segment [9] - A steeper yield curve is expected if monetary policy is loosened amidst existing inflation and tariff pressures [8] Portfolio Construction and Risk Management - The portfolio includes short-duration credit, which is expected to rally if rates decline, providing dual exposure [13] - The firm is prioritizing stability and managing volatility, avoiding stretching for valuation or taking on significant risk due to unpredictable rate cuts [17] - The portfolio incorporates floating rate debt to benefit if there are no rate cuts [18] - The firm is considering non-dollar trades for the portfolio at some point this year [18] Fiscal Policy and Global Sovereign Debt - The analyst expresses concern about increased government spending, noting the debt limit was raised by $5 trillion [14] - There is pressure in sovereign debt globally, influenced by factors like the Japanese market and elections [15]

Federal Reserve & Interest Rates - The market is closely watching President Trump's pressure on Fed Chair Powell and potential impacts on Fed independence [1][2][10] - Uncertainty surrounding tariffs makes it difficult for the Federal Reserve to predict economic conditions and future rate cuts [3] - There are differing opinions on the timing of rate cuts, with some suggesting July or September, while others believe cuts are not urgent based on current data [10][15][18] - The futures market implies a slow, steady easing bias, and the Fed is ready to respond to downward trends in growth and the labor market [16][17] - Some Fed officials are increasingly voicing support for rate cuts sooner rather than later to get ahead of potential economic lags [7][8][9] Bond Market & Yields - Concerns exist that losing Fed independence could undermine the Treasury market's status as the safest asset [2] - The yield curve could steepen if there is not a credible Fed nominee, potentially leading to higher long-term rates and a bond market "conniption fit" [12] - The long end of the yield curve is reacting to political and economic risks, including questions about Fed independence [23] - Developed market economies are engaging in deficit-driven fiscal spending, requiring bond market absorption, potentially pushing the 30-year yield between 5% and 55% [25][26] - A steeper yield curve is likely to continue, supported by long-end demand and technicals [28] Credit Market & Risk - There's a surge of reverse Samurai bonds, with Japanese companies borrowing overseas, and the U S leveraged loan market is experiencing its busiest week since the start of the year, with volume near $50 billion [30][31] - The market is seeing a rush into riskier debt, but corporations are navigating the backdrop with resilience, though dispersion exists within sectors [32][33][34] - Valuations on a spread basis are approaching all-time high single-digit percentiles, emphasizing the importance of avoiding downside risk [36] - Selectively moving down on credit risk is favored over duration risk, with opportunities in triple B-rated bonds or the high end of high-yield bonds [38][39] - While default rates are historically low, they are creeping higher, and bankruptcies are rising, partly attributed to tariffs and aggressive capital structures [44][45][46][47]

We do have that breaking news right now. Let's get straight to Rick Santelli for more on that. Rick, take it away.Yes, this is our June read on CPI, the consumer price uh inflationary guide, and it is a little warmer than expected on year-over-year, but headline looks good. Up 3/10 as expected. That does follow up one10enth.Up 3/10 will be the second warmest of the year. January was the warmest at up half 1%. This is as expected but two ten hotter than the rearview mirror.If we strip out food and energy com ...

Tariffs and Market Risk - The market is largely discounting the risk of higher tariffs, viewing President's threats as saber rattling [2][3] - There is a risk that tariffs, with an effective rate of 13-14%, will start to impact second quarter earnings, as they began to kick in during May [4] - Mega cap tech companies are relatively invulnerable to tariffs [12] Interest Rates and Fed Policy - The Fed is split on interest rate policy, with approximately 50% favoring rate cuts due to concerns about unemployment and 50% worried about the inflationary effects of tariffs [6] - Chicago Fed chairman Goulsby is considered dovish and signals potential rate cuts [5] Yield Curve and Banking Sector - A steepening yield curve is generally considered positive for the overall economy and is beneficial for banks, as they borrow short and lend long [8] - The banking sector is fundamentally benefiting from the current yield curve [9] - Mega cap banks like JP Morgan are trading at high valuations (250% of book value), but regional banks may still offer attractive opportunities [10] Tech Sector - Tech names are showing strong positive indications pre-earnings, with approximately 60% of positive pre-announcements coming from the tech sector, compared to about 14% for industrials [13] - Mega cap tech companies still have room to grow, driven by long-term growth pathways, despite recent pullbacks for profit taking [12]

Investment Rating - The report indicates a modestly richer range for US yields, with expectations for 2-year and 10-year yields to finish the year at 3.45% and 4.20% respectively, down from previous forecasts of 3.85% and 4.50% [2][5]. Core Views - The revised Fed baseline suggests earlier cuts and a lower terminal rate, leading to a lower range for US yields across the curve. The expectation for 10-year US yields is now 4.20% at the end of 2025, compared to 4.50% previously [1][2]. - The report anticipates that the improved macro outlook will compress risk premia throughout the Gilt curve, with a forecast of 10-year Gilts at 4.25% by year-end [19]. - European duration is expected to trade weaker over time, with a 10-year Bund yield forecast of 2.8% for end-2025, driven by fiscal support from Germany [19][11]. Summary by Sections US and Canada - The firmer than expected June jobs report has led to a modestly richer range for US yields, with the revised forecasts reflecting a dovish stance compared to market pricing [2][5]. - The risks associated with diminished central bank independence and fiscal pressures are limiting factors for long-end richening [2]. Europe - The report maintains Bund yield forecasts at 2.8% for end-2025, with expectations that fiscal support will push yields higher as growth expectations improve [11][19]. - The ECB's strategy assessment indicates a need for forceful policy action to address inflation volatility, with limited guidance on near-term policy [11]. UK - The report notes ongoing fiscal fragilities in the UK, but front-end longs are expected to remain relatively well protected despite recent volatility in the Gilt market [16][19]. - The expectation is for 10-year Gilts to rally towards 4.25% by year-end, supported by bullish spillovers from the US [19]. Japan - The report suggests that the BOJ normalization cycle will be prolonged, with a medium-term neutral rate of 1.25-1.5%, impacting yields across the curve [19]. General Market Dynamics - The report highlights that a benign path to lower short-term rates can improve the economic appeal of US Treasuries, despite downward revisions to US yields [1][4]. - The potential for deeper cuts to support lower yields is acknowledged, with a steeper curve expected in spot terms [4][7].

Market Trends & Investment Strategies - The discussion revolves around investment strategies concerning treasuries, particularly the 20-year Bond ETF (TLT), and European bonds [1] - The firm expresses reservations about the back end of the yield curve, considering alternatives like ECB rate cuts or seeking opportunities at the long end [2] - Tactical buying of the long end of the yield curve is considered around quarter-end [2] - Long-duration assets can be helpful if geopolitical risks resurface or inflation declines [5] - Currently, equities, especially growth equities with a 19% ROE, are favored over long-duration bonds due to inflation concerns and tariff issues [5][6] Duration & Hedging - Duration is viewed as no longer a reliable hedge [4] - TLT is considered an efficient vehicle for gaining duration when needed, although not currently favored [3] Economic Factors - Inflation expectations and potential tariff problems are key themes influencing market movements [5]

They've been signaling basically to ignore the inflation data for now because it's either a lagging indicator or has the potential to change. The one thing that could make the Fed move quicker would be a weakening of the labor market. But as Ed said, the important thing to note as as bond investors and credit investors is the next move is still going to be lower rates.I am curious, Steve, when we talk about this idea of the next move and if it is lower and you have a market that at least right now seems to ...

Interest Rate Policy & Economic Outlook - Market anticipates approximately two rate cuts by year-end, while some Fed officials suggest potentially only one [1] - There's significant uncertainty and deteriorating sentiment in the economy, making it difficult for the Fed to balance monetary policy [2] - Political factors, including a new Fed chair, may lead to increased pressure for rate cuts due to the impact of interest rates on large debts [3] Impact of Rate Cuts - Lowering rates could reduce returns on assets, requiring interventions that devalue money [4] - Aggressive rate cuts could negatively impact the bond market [5] - Monitoring the yield curve, dollar movement, and gold prices can reflect shifts away from bonds due to concerns about the value of money [6] Monetary Policy & Elections - Midterm elections and potential changes in monetary policy create a period of concern for the markets [5]

Joining us this morning, Fidelity Investments director of Global Macro, Yuri Timmer, with us, who I'm sure has been listening in. Yurian, it's good to see you. Of the dual threats that we were just discussing, uh, do you think there's that one is more pronounced than the other.Um, I think they're fairly imbalanced right now. And again, this is the really the first time in decades that the Fed has had to really think about both mandates, right. for the last 15 years or so whenever there was a shock to growth ...