Will political paralysis in the U.S. eventually affect markets?

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Inman Connect San Francisco, Jul 16-20, 2018

Long-term rates have continued to slide down in the second week since the Fed raised the overnight cost of money. The 10-year T-note has moved from 2.62 percent to 2.40 percent, taking mortgages from just under 4.50 percent back to 4.25 percent. A move like this is not unusual nor a trend change, and it reflects neither current political entertainment nor the economy. It is just a pause on the way to the Fed’s next hike, as the economy is doing fine. Politics may have some effect on economic prospects and long-term rates, but that will be weeks to months ahead. The Fed’s intentions show through in the 2-year T-note and its trading relative to the 10- year: 10s fell 22 basis points (bps = one one-hundredth of a percent), but the 2s only fell 14 bps. Gnats’ whiskers as yet, but it's worth watching every week ahead. A “flattening yield curve,” the spread between the 2-year and 10-year narrowing is a common sign that the Fed is overdoing its hikes. Take note...