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Yield Curve Continues to Flatten, a Look at the Black Friday Covid-19 Yield Plunge

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22 comments on Yield Curve Continues to Flatten, a Look at the Black Friday Covid-19 Yield Plunge

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One Day Change Synopsis

  • The markets were closed on Thanksgiving, November 25. The chart reflects the change between November 24 and November 26. 
  • Yields were down across the board from 1-year through 30-years. 
  • 7-year and 5-year yields declined the most, 18 basis points. 

Omicron Covid-19 Threat

The response was due to global lockdowns in at least 9 countries on a new Covid-19 variant labeled Omicron.

Treasury Yields October 1 vs November 26 

Change in treasury Yield Since October 1 

Change Notes

  • The Yield Curve has been flattening since late September or early October. 
  • I have been using October 1 for my starting point in previous comparisons and stick with that date.
  • Since October 1 30-year and 20-year yields have declined. The 10-year yield is flat and everything else is up.
  • As in previous updates, the 3-year note continues to be the spot most sensitive to expected rate hikes. 
  • The 30-year yield is down 21 basis points and the 3-year yield is up 32 basis points. This represents 53 basis points of relative tightening.  

Inversion Notes 

  • Inversion occurs when longer-term treasuries have a lower yield than shorter-term treasuries.
  • The 30-year treasury (1.83%) and 20-year treasury (1.89%) are inverted by 6 basis points. This has been ongoing for weeks.
  • There is only 8 basis points of difference between the 7-year and 10-year notes. I expect this will be the next spot to invert.
  • Inversion is a recession signal but the inversions are not deep enough yet to signal anything 

The yield curve plunge was expected in this corner, but I had no idea in advance of the new covid-19 variant.

Rather, expected rate hikes just seldom happen and I felt far too many were priced in. 

See Interest Rate Hike Odds Crash On Renewed Covid-19 Concerns for discussion. 

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Mike Shedlock

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22 Comments
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ColoradoAccountant
ColoradoAccountant
4 years ago
Most of my life an ounce of gold would buy 10 barrels of oil.  Most of the 20th century an ounce of gold was $35 and oil was $3.50 (high school and undergrad in Texas).  The current inflation is the final act to us losing our moorings to something, anything in the Periodic Chart of the Elements.
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Eddie_T
Eddie_T
4 years ago
Reply to  ColoradoAccountant
$180 oil is not out of the question within the next couple years. Back on track.
I  think central banks started making sure gold didn’t make sudden moves on Greenspans’s watch. I’m not saying they CONTROL the price of gold, but they like to screw with the futures market enough to ruin the technicals when gold heats up more than that want it to. I’ve seen it happen too many times in the middle of the night on some low volume Sunday. 
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Doug78
Doug78
4 years ago
Efficient market.
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thimk
thimk
4 years ago
Talked with Walmarts’s checkout lady today . she said in store black Friday was a bust , just like last year. She said everyone was ordering
 on-line. Between flash mobs, covid and the amazon juggernaut,  Brick and Mortar   is transitory . Black Friday is morphing into a non event.  Talked to plumber brother . he doesn’t carry/order any inventory any more . He tells the client to order what they want, he will install it when it arrives at their home. Times are a changing . Keep your powder dry, I believe post christmas retail will be heavily discounted . Government stimmy pushed forward  sales.  Also 111 ships bobbing around the coast of caly pending unloading as of 2 weeks ago.  current article says this backlog has been reduced to 66 container ships.  Will retailers  be able to sell this  influx supply ?? 
 
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Mr. Purple
Mr. Purple
4 years ago
Reply to  thimk
“Keep your powder dry”
Zat you Q?
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kiers
kiers
4 years ago
I like your bar chart view of the yield curve….BUT(!) why do you put the shorter maturities far to the right?  I mean are u just trying to p*ss people off or what?  The 30 year should be at the right end!
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amigator
amigator
4 years ago
Reply to  kiers
It is a change in yield and typically on a linear number line negatives are to the left.  On a total yield I think you would be reversed. 
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Mish
Mish
4 years ago
Reply to  kiers
I figured out how to do that on the right side of an Excel spreadsheet horizontal axis. 
Next chart will be the way you suggest.
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Bronco
Bronco
4 years ago
Black Friday weekend sales:
  • traffic at retail stores on Black Friday dropped 28.3% compared with 2019 levels, according to preliminary data from Sensormatic Solutions.
  • Traffic was up 47.5% compared with year-ago levels, Sensormatic said.
  • “It’s clear shoppers are shopping earlier this season, just as they did last season,” said Brian Field, senior director of global retail consulting at Sensormatic.
  • Online, retailers rang up $8.9 billion in sales on Black Friday, down from the record of about $9 billion spent on the Friday after Thanksgiving a year earlier, according to data from Adobe Analytics.
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Bronco
Bronco
4 years ago
“Here are some charts that show the US treasury yield plunge on the new Omicron Covid-19 threat.”
…
Well, that is certainly the reason MSM giving for plunge … and probably some due to it.  But, a satellite view shows Periphery (Emerging markets) Bubble beginning to burst … leading to liquidity sloshing to safety (for now) to Core (Developed markets).  Currencies in Turkey, Russia, Brazil, and Mexico among those hammered this past week.
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Maximus_Minimus
Maximus_Minimus
4 years ago
Conspiracy theory says, Omicron is a central banking subterfuge to keep the ZIRP.
The fact is, the financial system is so screwed up (thanks to the cental banking cabal) that from ZIRP, NIRP is the only option.
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Bronco
Bronco
4 years ago
Reply to  Maximus_Minimus
“NIRP is the only option.”
…
Yes.  That has been my contention for years.  I know NIRP screws banks NIM, but it will be seen as Least Bad Option.  If they let asset prices collapse … there goes bank collateral … down the toilet.
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kiers
kiers
4 years ago
Reply to  Bronco
Technically (they learnt this in EU), NIRP doesn’t screw banks NIM as long as shorter NIRP is less than longer NIRP.  In other words, as long as the slope of the curve is there, it’s STILL GOOD for banks.
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Maximus_Minimus
Maximus_Minimus
4 years ago
Reply to  kiers
They will fight to the last recalcitrant savers, until everybody runs naked: either having assets of not.
Back to the middle ages. The lords had their castles and land, the peasants had their working hands.
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Maximus_Minimus
Maximus_Minimus
4 years ago
Reply to  kiers
I believed banks needed deposits, too, and who would keep money in the bank when they charge for it.
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Yooper
Yooper
4 years ago
Reply to  Maximus_Minimus
I work for a top 4 bank, global commercial banking. Frankly, with zero bps interest, the only place the money can go is non-interest bearing accounts earning an earned rebate of 17-some bps to offset fees – unless you want to tie up your money in essentially nothing returns for more than 6 mo…
Frankly, the majority of companies are saying chasing returns isn’t worth the hassle…
…and we don’t need deposits…
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kiers
kiers
4 years ago
Reply to  Maximus_Minimus
They sure “timed” it ……   waiting till………JUST BEFORE thanksgiving dinner, prior to sunset on the eastern seaboard.   THey be shysters.  Playaz.
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Yooper
Yooper
4 years ago
Mish, any thoughts on those old posts about FOFOA and gold. I found it extremely interesting, and took action way back then, but the biggest takeaway I had was that there would be a time when statistics and traditional benchmarks don’t reflect the underlying mean and would incorrectly report subsequent reversion (however defined), but the primary indicator would be the market instability (ie ever increasing swings) that would define a market reset to a new norm.
I’ve gambling money in crypto, insurance in PM, and like the insights by a few here in energy, so thank you for your efforts here over the years (and the pictures of the UP 🙂

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Mish
Mish
4 years ago
Reply to  Yooper
Hell my own comment was removed for violating guidelines. 
FOFOA was an idiot
Friend Of a Friend Of Another
“Another” was this alleged genius who believed in Hyperinflation
FOFOA did not know “Another” nor did he know Another’s Friend
Everyone including FOFOA was anonymous. The whole thing was idiotic.
I rebutted FOFOA and many others back in 2011 
Hyperinflation Nonsense in Multiple Places
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Yooper
Yooper
4 years ago
Reply to  Mish
“Hell my own comment was removed for violating guidelines.”   Now that’s funny 🙂
As I said, I thought it an interesting thought experiment, and I’m in your boat about hyperinflation.

Just curious if you took another gander at the idea since the printing press came off the track since 2011.

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Eddie_T
Eddie_T
4 years ago
Yeah, I noticed that yield plunge on the ten year.   🙂  
Good synopsis, Mish. Thanks very much. Maybe to be expected with this new COVID scare. Could be wrong but I’m looking for the O variant effects for markets to be…..er, transitory. lol. 
It isn’t that I don’t think lockdowns for Europe and elsewhere are prudent….but I don’t expect them to last long. Energy is way oversold imho. But I’m not calling a bottom yet. Tomorrow should be an interesting day for markets.
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Scooot
Scooot
4 years ago
Reply to  Eddie_T
They’re holding off on the lockdowns for the minute here. However “825 out of 3480 patients in intensive care beds across England had Covid” according to an article in today’s Times. Given there’s a lag, it’ll be a few weeks before we know if this new variant is going to put pressure on the hospitals, and they’ll want to hold off over Christmas. 
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