The Debt Markets Swiftly Get Ahead Of The Fed 

The Fed is still producing money and keeping interest rates around zero. 

However, from late September to late December, the two-year Treasury yield climbed from roughly 0.23% to 0.73%.

It is now 0.87%, the highest since February 2020. 

Quantitative Tightening (QT) is the Fed’s main anti-inflation policy tool and the Fed launched Standing Repo Facilities (SRFs) in July to calm the repo market as the balance sheet unwinds faster and faster.

Everyone knows the Fed will hike rates sooner and faster than expected, and decrease its balance sheet faster than planned. 

It’s big and the market’s aren’t waiting.

On Friday, the 10 Year Treasury Yield moved from 1.12% to 1.78%, the highest since before the pandemic.

QT is the antithesis of QE. 

Like QE, QT allows long-term interest rates to rise, and markets respond. 

In May 2020, Freddie Mac reported a 3.22% 30-year fixed mortgage rate.

Since then, rates have soared to 3.50%, the highest since late January 2020. 

And, after 13 years of massive QE and interest rate repression, these increased mortgage rates will be utilized to pop the absurd bubble in home prices over the previous 18 months.