A Big Round Number Fetish

Rates on the 10-Year Note popped above 5% for the first time in years this morning, in effect rivaling multi-decade highs, before reversing to red and dipping down to 4.94% as I write this. 

As we have noted here and with Members over the years, markets have an odd tendency to fetishize big, round numbers. Here, we are talking about 5.0% (or 50 on the TNX daily chart, below, which is the Index for Rates on the 10-Year). However, the key issue is whether this initial reaction is merely paying homage to the big round number fetish or, instead, a meaningful move which has legs for a long-term reversal. 

With a likely 25bps rate hike coming at this Wednesday afternoon's FOMC (much to the chagrin of the White House calling for more rate cuts), we are looking to see whether the bond market will actually punish The Fed for not raising more, faster. I have seen very few people who have offered this angle.

But I believe The Fed remains so far behind the inflation curve that even a 25bps hike will do little to assuage the long end. Recall that The Fed only controls the overnight, or Federal Funds rate, and not the long end of the curve which is still market-based, despite recent comments and buybacks from the Treasury Secretary. Hence, many folks could get caught off-guard with a bond and stock market selloff this week despite an expected 25bps hike. 

Elsewhere, dip-buyers are out in full force in software again today, trying to offset notable weakness in semis after the AI slowdown headlines this weekend. The game of musical chairs is still going, even with the FOMC risk and the most bearish seasonality of the year right ahead.