Steepening curve (close to steepest this year) has a message: the Fed can keep cutting but markets may still push long yields higher.
This disconnect has made this cutting round a highly unusual one. At the press conference Powell attributed it to growth expectation, but it is also greater term premium – the additional compensation investors demand for holding long duration Treasuries in portfolios – because of fiscal trajectory. Term premium has gone from years in the negative to now >70 bps, and I think it can go higher.
