There was a burst of enthusiasm in capital markets surrounding Donald Trump’s election as US President. It was a hope for economic growth, higher paying jobs and undoing President Obama’s regulatory overreach.

But alas, continued stonewalling in Congress by Democrats (and RINOS) as well as threats of impeachment over Russia have killed off enthusian in the US Treasury 10Y-2Y yield curve. As you can see, the 10Y-2Y Treasury curve slope is now lower than before the November 8th election.

But that optimism effect has not declined appreciably in the 10 year Treasury and 3o year mortgage rate. The optimism effect has gradually declined to Nov 14th level, several days after the election.

While there has been a downward drift in the 10 year Treasury yield, The Federal Reserve has been merrily raising their Fed Funds Target Rate twice since the election, helping to flatten the 10Y-2Y curve.

With another rate increase expected at the next FOMC meeting on June 14th (90% likelihood), we should be a further flattening of the 10Y-2Y Treasury curve (ceteris paribus) and a further decline in the Trump optimism effect.

And there is a 6% chance that we could see a rate CUT at the July FOMC meeting.

Janet Yellen: “I swear that I will not raise rates and spook investors more than once, unless Donald Trump is elected.”