Steno Signals #177 - The next liquidity trick arrives in January! Stealth-QE time?

Most risk-takers were caught off guard by Powell's attempts to bring the Fed ahead of the hawkish repricing last week. Will this prove to be another incredibly ill-timed flip-flop from the Fed?

Happy Sunday from me! This will be the last update before the festive season, and I hope you will have a relaxed and enjoyable time with your loved ones.

It has been a big year for me personally with the launch of Asgard-Steno Global Macro. Despite Powell pulling the rug from under the Christmas rally, we are off to a decent start and expect to deliver strong returns in choppy markets in 2025, where the macro direction will be challenged by several factors. Visit www.stenoglobalmacro.com or email info@stenoglobalmacro.com if you are interested in learning more about the Hedge Fund Strategy.

The most important chart in Global Macro is the one below on 10-year bond yields. Powell managed to spook investors out of the recent “bearish trend channel” in bond yields. This has proven to be by far the most hawkish cutting cycle in modern history, with bond yields through the roof while the Fed has been cutting policy rates.

The economy has continued to fare okay since the Jumbo cut in September, and some prices have re-accelerated, leading the Fed to another panicked flip-flop. Remember, flip-flops are extraordinarily counterproductive when conducted by the mothership of bond markets. It seems bond investors have had enough of the policy volatility from both Jay Powell and US politicians.

Perhaps the US Treasury and the Fed have a common liquidity strategy up their sleeves?

Chart of the week: Have we seen a false break-out in 10yr bond yields?