This chart isn't getting enough attention at the moment.
The bond market is no longer seeing a big inflation problem. Five year breakevens are down to 2.64% from as hig has 3.7% in late April.
The market has gotten the message that the Fed will tame prices, even if it takes a recession to do it. That's coupled with Fed funds top pricing at 3.50-3.75% and it now looks like we have visibility to the peak.
In general, the market doesn't wait for the big turn but until there's visibility on when it will come. Right now, that's dogged by recession fears and that's justified but 3.50% ranges aren't crippling and the ongoing drift lower in breakevens is encouraging. It may also mean that we've seen the top in 10-30 year Treasury yields.
Notably, the 2.64% level is still above the pre-covid levels in the 1.80-2.0% range but right now the Fed will probably settle for anything below 3%.
What I worry about is that once risk markets get on a more-solid footing and consumers start to feel a bit better, we will get another round of commodity-inflation. That could take prices closer to 4% and force the Fed to hike further.
