Here is a nice graph from the CME:
What do we see? The 2 year yield above 1.25%!!!!!!! This is crazy. The market is basically pricing in the equivalent of 4 rate hikes + balance sheet normalization by the end of the year. Even though this expectation is not crazy, but the RATE at which this is happening is insane.
The spread on nominal rates is now down to only 63bp. The last time it was this low was in 2017, just before the economic downturn in 2018.
This is reflected in the gold price as well.
What can save the situation?
IMO, oil price. Oil has to come down in a big way, which means Iran deal has to go through
What to monitor?
- Rate of increase of the short end of the yield curve
If the rate slows, stock market volatility will decrease. And most likely focus will return back to earnings focus, and a balancing of value between stocks and bonds.
2.Iran
If Iran deal goes through, Oil prices comes down in a big way, long term yields most likely tick up slightly, Gold will be down in a big way, and stock market will be in a much healthier position, and 2s10s spread will increase.
Little Monkey 