Stock market and US Treasury market sending different signals

RIP the CFC program as of tonight and we’ll now get to see what the natural supply and demand dynamic is in the auto industry. The other major program, the Cash for Shelter plan providing tax credits for home purchases, runs to Nov 31st but there is already talk of enlarging its size and making it available to all home buyers, not just first time. Either way, what is most interesting about the markets is the differing opinions on growth that the stock market on one hand is sending and the US Treasury market is on the other. Stocks are at 11 month highs while the 10 year bond yield is 40 bps below the level of mid June. With the Fed’s monetary pedal to the metal, yields aren’t low because people expect low inflation to remain with the growth the stock market believes in, in my opinion. The consensus out of Jackson Hole seems to be that policy will be easy for a while to avoid nipping the recovery to early.

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