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Watch Out! Flattening of the Yield Curve Portends Economic Weakness

Portions of the yield curve flattened significantly today, strengthening a move that was already in place.
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US Treasury Yields Daily Percent 2021-06-16

FOMC Bond Market Reaction

There was an interesting reaction in the bond market today in response to the Fed penciling in rate hikes that I doubt happen. 

  • 30-Year Yield: +0 Basis Points
  • 10-Year Yield: +9 Basis Points
  • 5-Year Yield: +11 Basis Points
  • 2-Year Yield: +5 Basis Points 
  • 1-Month Yield: +2 Basis Points

Normally, moves are larger at the long end of the curve, in either direction. Today, the 30-year long bond made a big yawn in response to alleged pending inflation. 

The net result, amplified a yield spread tightening that was already underway.

US Treasury Yield Spreads 

US Treasury Yield Spreads Daily 2021-06-16

Inflation in the Rear View Mirror

This is by no means a flat yield curve. However, the trend is significant, so is 30-year long bond yield itself. 

If you are looking for a signal that inflation is mostly if not entirely in the rear view mirror, then look no further than the long bond yield and flattening at the long end of the curve.

Fed Will Foolishly Continue QE Purchases in Search of Higher Inflation

Earlier today I commented the Fed Will Foolishly Continue QE Purchases in Search of Higher Inflation

The Key takeaway from the FOMC meeting is not the expectation of faster hikes. Rather it's the Fed's stated policy of more QE when banks are choking on it.

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Despite the Fed's attempt to cram more debt into the system, corporate investment is sinking.

Consumer Inflation Expectations Jump 7th Straight Month to a New Record High but careful analysis shows expectations are totally meaningless.

Priming the Pump Nonsense 

The Fed believes in priming the pump nonsense, that somehow it can steer the economy into some sort of inflationary nirvana via interest rate suppression and QE.

There is a short-term reaction, then what? Then the stimulus fades (as it always does), while unproductive debt builds up further depressing the economy in the long-rung.

Not a Truck!

The economy is not a truck, and it cannot be steered by anyone, let alone Fed charlatans who would not understand inflation if it jumped up and spit grapefruit juice right in Powell's eyes. 

Meanwhile, please note the Impact of Three Rounds of Stimulus on Retail Spending has already worn off. 

What's the Fed going to do for an encore? 

I suggest it is anything but the rate hikes they penciled in today temporarily spooking gold.

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