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The Federal Reserve decided to keep the federal funds rate unchanged going into 2020 which pleased both the stock market and bond market.

The yield on a 10-year Treasury note dropped 

* Usually, I should say. If you look at the chart, above, you will see that the rates began to diverge, just a couple months ago. Treasury note rates have dropped by more than the Fed funds rate target. This is because bond traders believe we’re done with interest rate hikes. This isn’t necessarily so, by any means! The Fed still fears raging inflation, and future rate hikes are still a possibility, if not a probability.

Says one fixed income analyst: “In terms of inflation, I keep whispering in the traders’ ears, ‘Look, core [prices], hourly wages, unit labor costs, they’re all at dangerous levels.’ They don’t care.”

They will, if suddenly faced with a tighter federal fiscal policy and higher lending rates, in as 2020 moves forward


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