Weekly Newsletter

When inflation came out higher than expected on Friday morning, market watchers knew (or thought they knew) what would happen next. But instead, the opposite happened.

Interest rates improved fairly steadily throughout the week with the biggest drop seen after Wednesday's Fed announcement. But the Fed didn't cut rates.

Rates rocketed lower with stunning consistency starting in late February. They finally bounced last week, but rather than move back up to previous levels, they held in a relatively narrow, sideways range. That set the stage for a showdown this week.

There's a lot for financial markets to digest at the moment. Over the past few weeks, the net effect of that digestion has been good for bonds/rates and bad for stocks. But the prevailing correlation broke down this week and few people in the U.S. truly understand why.

Rates have been almost perfectly consistent in moving lower since February 13th and broadly consistent since January 15th. There's one big reason for that and it's simpler than you might think.