The market is pushing the envelop

The next two Fed meetings are on June 19 and July 31. For the July meeting, the odds of a cut are now 50%, including a 6% chance of a 50 bps cut.

The 2-year yield is just 1.88% after another 4 bps fall today. That compares to Fed funds at 2.25%-2.50%. I thought after Friday's drop in yields we would see a reversal today; instead it's been some follow through. The odds of a July cut a week ago were just 18%.

That comes on reports that Trump is considering tariffs on Australia and that it will India's beneficiary developing country designation.

Looking further out, the market is now at 97% for a cut by year end with two cuts as the most-likely outcome.