Bond Vigilantes Started Voting Early

The US presidential and congressional elections aren't until November 5, but the Bond Vigilantes are voting early. The 10-year US Treasury bond yield has risen a whopping 63 basis points to 4.25% since the Fed's September 17-18 meeting (chart). In exit polls, the Bond Vigilantes are saying they are voting against Fed Chair Jerome Powell's dovish monetary policy because the economy is running hot, and the Fed's premature 50bps rate cut 0n September 18 raises the risk that it will overheat.

We anticipated this might happen. On September 2, we wrote that better-than-expected economic indicators were likely to rattle the bond market. On September 22, we wrote: "So now investors must consider the possibility that the Fed's easing will continue to drive the 2-year yield lower, but the 10-year yield might move higher on concerns that the Fed might heat up a warm economy." We are sticking with our 4.00%-4.50% range for the bond yield. We resisted raising our S&P 500 yearend target of 5800 when it rose above this level recently. We aren't lowering it now that it is back at that level.