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The 3-Month T-Bill Yield Inverts With the 30-Year Long Bond

November 1, 2022

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9:08 am

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25 comments

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Economics

Chart from Investing.Com annotations by Mish

The 3-Month T-Bill yield hit 4.22% early this morning. At that time the 3-Month to 30-Year inversion was about 9 basis points.

The chart above still shows the inversion, just a bit less.

So much for the idea the Fed would steepen the curve.

If the Fed could prevent inversions or recessions we would not have inversions or recessions.

In this case, I suspect the Fed actually wants a mild recession but can never say that.

This post originated at MishTalk.Com.

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25 Comments

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Christoball

3 years ago

So good to see a strong JOLTS report. Labor will go where it is most valuable and some people will have to learn to do their own chores. So many Zombie companies rely on cheap money, but so many more Zombie companies rely on exploited labor at low wages. Maybe we get a much needed 1% rate increase tomorrow.

MPO45

3 years ago

Despite 8% inflation, it’s a no-brainer to be loading up and laddering T-bills. Safe returns at 4% and growing. Can’t wait to load up this week on 4, 8 and 13 week T-biils. I may throw in a 17 week T-bill for fun and entertainment this week.

MarkraD

3 years ago

“In this case, I suspect the Fed actually wants a mild recession but can never say that.”

And now, JOLTS, ugh.

MPO45

3 years ago

Reply to MarkraD

Like I’ve been saying, companies can lay off all they want, the most efficient companies that need labor will snap them up and when the layoffers need the labor back, they will have to pay dearly or live without. Why? 10,000 boomers retiring each day over the next 8 years and add those GenXers that are too sick or too rich to grind. It all adds up and there is no spare margin of labor out there.

Thetenyear

3 years ago

Inversions can be problematic because no one wants to put long term money at risk when short term returns are better. As a result there is less incentive for companies to take on long term projects. This is why inversions and recessions often go hand in hand.

Salmo Trutta

3 years ago

The commercial and the Reserve banks have created, monetized, and sterilized (to some extent), an historical volume of new money. The FED must freeze the growth of the means-of-payment money supply for several years to stop inflation, to bring it done to a 2% level.

The upshot is a revolving string of negative impacts on different asset prices.

Money demand is the inverse or the reciprocal of
velocity.

M2/Gross Domestic Product | FRED | St. Louis Fed (stlouisfed.org)

The demand for money, or Cambridge economist, Alfred Marshall’s cash/balances approach, is slowing decreasing. It will extend the outlook for higher inflation. M2 is mud pie. The volume
of money (stock) is irrelevant unless it is turning over (flow).

Short-term money flows, proxy for real output are up, conterminous with R-gDp. Long-term money flows are decelerating now.

Salmo Trutta

3 years ago

Banks aren’t intermediaries. A rise in rates induces nonbank disintermediation. It slows the velocity of circulation. If you reduce the volume of loan funds, rates rise. The FED is operating the economic engine in reverse.

Lending by the banks is
inflationary (increases the volume and turnover of new money). Lending by the
nonbanks is noninflationary (results in the turnover of existing money, a
velocity relationship). If savings are not expeditiously activated, then a dampening effect is generated. And all bank-held savings are frozen. Where do you think velocity went with the deregulation
of interest rates by the ABA?

The 1966 Interest Rate Adjustment Act is the template for correction.

As Luca Pacioli, a Renaissance man, “The
Father of Accounting and Bookkeeping” famously quipped: “debits on the left and
credits on the right, don’t go to sleep with an imbalance”.

See The FED GUY:

Quantitative Buybacks – Fed Guy

SyTuck

3 years ago

I think the fed panicked at the top and they will panic at the bottom, just as they have every other cycle.

The only difference this time is that they are panicking more then normal.

8dots

3 years ago

The German rates : 3M 1%, 1Y 2%, 3y 1.86, 5y 1.9%, 10y 2.05%, 20y 2.25%, 30y 2.07%.

8dots

3 years ago

TY daily – 10Y T note futures – is up this morning slightly above a support line coming from Oct 1987 and Jan 2000 lows. If breached the next stop is June 2 1986 backbone : 105.25/95.59 backbone.

Doug78

3 years ago

The market is just anticipating that the Fed’s policies will eventually break inflation. The market may be right or wrong on that and we still have a long ways to go but the people who keep saying the Fed will have to cut rates soon to save the economy are still on the losing side of this trade. There is no one more fanatic than a recent convert and the Fed recently converted to Volckerism so I expect them to hold the course, deflate the bubbles and kill inflation. Afterwards we will see but it certainly doesn’t bode well for equities or real estate.

Scooot

3 years ago

Reply to Doug78

Do you think they’ll raise their inflation target to say 3%?

Captain Ahab

3 years ago

Reply to Scooot

It is reassuring to know that the ‘market’ expects the next 30 years to be more of the same: subsidized negative real rates so inflation appears low.

Doug78

3 years ago

Reply to Scooot

I think that an inflation target is not much use in this moment. Suffice to say that inflation is way too high now and we need to get it down to a reasonable level. Granted that is ambiguous but we can worry about the level when we get there.

StukiMoi

3 years ago

Reply to Doug78

Inflation is always and everywhere too high; unless burning high denomination dollar bills for heat, and/or converting Gold to Lead, becomes the overwhelmingly fashionable thing to do among those who have any of either.

HippyDippy

3 years ago

Reply to Doug78

When you factor in the unfathomable depths of stupidity exhibited by our own government, a recession is just wishful thinking.

lamlawindy

3 years ago

Reply to Doug78

I guess my question is: Why do you think that the Fed won’t flip-flop on its policy? I’d like to know why you believe that Powell & Co. won’t bend to political/public will & pivot. If, for example, you believe that Powell wants to be known as the Second Coming of Paul Volcker, then I’d like to hear that.

Captain Ahab

3 years ago

Reply to lamlawindy

IMHO, what the Fed does/will do is about ethics and value systems. Do you steal wealth from savers (with low/negative real rates) to subsidize others forever, or accept more pain/dislocation in the short term, and allow competition to set interest rates?

Doug78

3 years ago

Reply to lamlawindy

Why do I think the Fed won’t flip-flop this time? Perhaps the Fed raising rates at the fastest clip in its history gives me the feeling that they mean business. They are not fine-tuning using a scalpel but wielding a very heavy club with spikes.

TexasTim65

3 years ago

Reply to lamlawindy

Because raging inflation increases uncertainly.

Uncertainty is very bad for businesses. They don’t know what their costs are going to be in 6 months or a year down the road so it’s very hard to make longer term plans or sign contracts.

It’s also very bad for workers too. If your about to sign a contract (union) for 3-5 years should you build in 3% raise or 5% or 8%. Get that wrong and you’ll be slaughtered 5 years from now. Even workers who get yearly increases struggle with too but to a lesser degree.

Lastly, inflation hits EVERYONE, rich, poor, democrat, republican etc. It’s the one thing no one likes and every one agrees is bad. So expect the Fed to slay inflation over anything else regardless of the damage done.

KidHorn

3 years ago

Reply to Doug78

I think there’s more to this than simply fighting inflation. US Government debt keeps going up, so treasury issuance keeps going up. At the same time, foreign central banks are decreasing their US debt holdings. And the FED is reducing their balance sheet. So, rates have to go up to attract non-government investment. Even without the FED raising rates, interest rates would be going up. The FED is just moving with the market.

Doug78

3 years ago

Reply to KidHorn

The market follows what the Fed says and does because the Fed has the power to move the money supply the way it wants immediately and if you are on the wrong side you lose money immediately so the Fed is the dog and we are the tail. Get used to it.

KidHorn

3 years ago

Reply to Doug78

The FED can’t just lower yields on treasury auctions without action. Get real.

Doug78

3 years ago

Reply to KidHorn

“Without action” of course not but if the Fed wants to take action it can influence the rate. The Federal Open Market Committee can buy or sell any bond duration and any quantity it wants and that is what is real.

amigator

3 years ago

Reply to Doug78

We will get to the point that the government is the market. Much like Japan, I think. Then what will we say about capitalism…failed but who/what failed the system or the people? The people will never admit…..

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The 3-Month T-Bill Yield Inverts With the 30-Year Long Bond

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