08.01.25 - All eyes on interest rates

Rumors about milder tariffs followed by Donald Trumps dementi pushed the interest rates and the inflation topic back in focus. The anticipated rate cuts by Wall Street wane. As a result, interest rates across major economies are going up, with a tilt to the longer side.
Tonight the Fed will release the minutes from its latest FOMC meeting back in December with its latest rate cut. The detailed records could provide valuable insights regarding the anticipated interest rate path in the US.

Markets: The US 10-year Treasury yield surpassed the 4.7%. With higher interest rates, more capital intense small & mid cap stocks suffer.

My View: Seems like the market wants to test the highs from October 2023 hitting the 5%.
I did not align with the prevailing consensus favoring significant rate cuts, nor do I now share investors’ heightened concerns about potential inflation. As a result, I expect interest rates to stabilize with some potential to decline. However, there is room for rates temporarily overshoot on the upside, as markets have shown a tendency to overreact recently.
It could be, that I was a slightly early adding exposure to the long-term Treasuries.
Should investors’ nervousness persist for several more days the overall sentiment could turn negative. Flight to quality kicks in. The hunt for safety and therefore US Treasuries will put yields lower again.

The last days could give a feeling what to expect during coming weeks and months. Any statement of president Trump and Elon Musk can move markets heavily in either direction as seen the last few days. An overall higher volatility level could be a reasonable consequence. Therefore the long volatility position implemented via ETF remains in my portfolio.

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