The Market is waiting for Bad News…

My continuing view is that the big investors and traders (hedge funds and Crypto whores) that are tied into the Trump web are hanging on to their positions waiting for the FED to whisper the idea that the real economy is slipping into a dark hole. The dark hole that is developing is a combination of first, the consumer linking their activity to their negative sentiment and secondly, CEO’s holding on to plans for the hoped for deregulation euphoria.

My view that Bonds made a bottom on May 23rd, still holds. This combination hooked into the tariff effects will put pressure on the FED to think seriously into lowering rates sooner than many expect. What may make this difficult for mainstream economists to digest, is that the dollar continues to look like it is going much lower as Trump drives the U.S currency dominance into the tank. Declining interest rates and a declining dollar at the same time flies in the face of established economics.

Wall Street appears to be starting to think timidly long-term in this direction now. Today, Morgan Stanley analysts said they expect a significant steepening of the U.S. Treasury yield curve, but not due to rising long-term yields. Instead, they forecast a broad decline in yields, particularly among shorter-term maturities. Despite this expectation, analysts caution that persistently high yields could continue to challenge investors over the coming months.

The investment bank’s economists anticipate that inflationary pressures, particularly those linked to recent tariffs, will prevent the Federal Reserve from cutting interest rates in 2025. This policy stance could keep Treasury yields stuck within their recent two-year range for longer than investors had hoped. 

However, looking toward the end of the year, Morgan Stanley expects U.S. economic growth to weaken as inflation eases. This slowdown, the institution argues will likely push yields lower, with the U.S. 10 Year Treasury yield (US10Y) projected to fall to around 4% by year-end. 

Further out, in 2026, Morgan Stanley envisions a more pronounced drop in yields as economic conditions continue to soften. They anticipate a sharper steepening of the yield curve, driven by declining short-term rates, eventually bringing overall Treasury yields below the levels seen in the past two years.