Bond Traders See the Fed's ‘Third Mandate’ Driving Rates Higher
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Bond traders are wagering that the stock market is driving U.S. monetary policy.
Michael Sedacca, an investment analyst at Rareview Capital, observes that five-year Treasury yields have been marching higher almost in lockstep with the S&P 500 Index. The 90-session correlation between the two has swelled to 0.95 -- the highest on record during a period in which both metrics are trending upwards. The unified movement suggests that investors see the Fed’s interest rate moves tied to soaring equities markets -- the unofficial “third mandate” for policy makers to keep a lid on asset-price inflation.