GOOD MORNING! Traders and fast money dominated the Treasury market with curve steepening trades. With the Fed still biased toward lower rates and inflation appearing sticky, the knee-jerk reaction was to buy the short-end (pushing yields down) and sell the long-end (pushing yields up). This is a trade that has stood the test of time, as seen in the attached graph. Stock tried to pare some of the losses from Wednesday sell-off following the Fed’s hawkish dot plot but faltered in the last half-hour of trading. Dollar strength weighed on commodities, especially precious metals.

    What can go wrong? The clock is ticking on Congress getting its act together to pass a continuing resolution by midnight tonight to prevent a partial or full shutdown of the government. The Fed released that dealer holdings of Treasuries hit a record high amount for the week ending December 11. Yields have gone up since then, suggesting they may been sellers since then or they are holding on to sizeable losses. The markets will be monitoring the last minute drama in D.C. while scrutinizing economic data, which includes the reportedly Fed’s favorite inflation gauge, headline and core PCE Deflators. Along with that will be November’s personal income, spending and savings. Later the preliminary December University of Michigan Consumer Sentiment Index. The original question of what can go wrong has the markets in a risk-off trade. Treasury yields, stock index futures are down in early trading. Stay buckled up.