WisdomTree

As I've discussed quite a bit recently, the recent sell-off in the U.S. Treasury arena seems to underscore the point that the money and bond markets have finally 'come to the Fed' and accepted this higher-for-longer theme.

Although there's been somewhat of a seesaw pattern, the rise in the UST 10-Year yield really began back in early April.

The U.S. budget deficit, which has been a point of discussion among economists and investors, recently received a downgrade in credit rating from Fitch Ratings agency, citing expected fiscal deterioration, a high and growing general government debt burden, and erosion of governance.

The Fed's recent rate hike has pushed the target range to 5.25%-5.50%, the highest level since early 2001, leaving investors to ponder if Powell & Co. are finished with this rate hike cycle or if there is another move waiting in the wings.

Chairman Powell's recent comments suggest that the Fed may not be skipping the pause and could be serious about raising the Fed Funds Rate as soon as this month's policy meeting.

The Fed was guiding the markets into thinking this was potentially the last rate hike in this cycle.

The debt ceiling saga is unfortunately still ongoing, but definitive progress has been made. According to reports, the Biden Administration and Congressional Republican negotiators have agreed to a debt ceiling/budget deal.

After last week's slew of second-tier data, it seemed as if the Treasury market had made up its mind-the economy is finally turning over and headed toward a recession sooner rather than later.

Investors are still waiting for signs of that recession, with recent economic data showing increasing evidence of slowing activity and tighter lending conditions.

The US Treasury market experienced some unusual trading activity, with the UST 2-Year yield surging by 70 bps in February and then tacking on another post-Powell increase of 25 bps, reaching a peak of 5.07%, the first time eclipsing the '5%' threshold since 2007.