Fed Funds

With the Bond market continuing its rally , we need to judge where rates will be in the future to make a judgement as to whether or not they are overbought / oversold . The inversion of the Treasury curve , with 2-year Treasurys yielding 4.80 , 5-year yielding 4.71% , 10-year yielding 4.76% gives us information as to what the market is estimating .

Another place to look is the Fed Funds market . The Fed Funds yield is presently 5.25% after the Fed halted rate increases at its August meeting , and the forward contract prices are indicating no upward moves over the next 6 months . In fact , they're even hinting at a possible rate cut early in 2007 . At present they imply a 50% chance of a cut to 5% by the April meeting . With inflation figures cooling -- especially the Fed's favorite inflation gauge , the PCE-deflator @ 0.1% in August -- Fed Funds futures are a good place to judge where Treasurys are heading.