With US treasury yields on a tear, one might think the curve is steepening. It is and it isn’t. Pictures will explain.
30-Year Yield Minus 5-Year Yield
30-Year Yield Minus 2-Year Yield
30-Year Yield Minus 1-Year Yield
10-Year Yield Minus 5-Year Yield
10-Year Yield Minus 2-Year Yield
5-Year Yield Minus 2-Year Yield
5-Year Yield Minus 1-Year Yield
2-Year Yield Minus 1-Year Yield
Synopsis
- The downtrend on 30-year spreads is still mostly intact. However, the 30-year vs 1-year spread (or shorter) is steepening.
- Most other spreads have turned up but the spread differentials are mostly tiny.
- Spread differentials are greatest at shorter maturities.
Yield Curve Flattening or Steepening?
Yes, both, depending on where you look.
More realistically, and on average, the yield curve started to steepen on January 2 or January 3.
“Bet Your Heinie” Treasury Bull is Over?
Not so fast. The treasury bull will not be over until it is certain the long end of the curve has bottomed. Despite proclamations by Bill Gross and others, it is far too early to make that call.
Bill Gross has incorrectly proclaimed the “end” several times. If another recession hits any time soon, I expect he will be wrong once again.
For further discussion, please see “You Bet Your Heinie” Bill Gross Needs a Fatter Crayon.
Mike “Mish” Shedlock
The yield curve was this low in 95 and stayed low, while the stock market kept rising, but that speculative run had a date with destiny and now the volume of global bonds and yield seeking investment is much MUCH larger. The long end is victim of supply. The Fed is fighting itself, in order to keep the drop in the dollar orderly. The 95 event was a counter rally in the long term collapse of rates, the bond massacre, this is little bond massacre. This time the economy can’t handle any sort of rate hikes, especially energy which is jobs and our main export market.
link to s3-us-west-2.amazonaws.com
“What will happen to equities in the next recession, given the obscenely over-leveraged condition of their balance sheets, will not be pretty.” Also, Bam, won’t the very re-collapsing of interest rates mitigate the damage to the over-leveraged, zombie companies, preventing it from getting too ugly?
Bam, are we really 104 months into ‘this “recovery”‘, or did it really begin in the 2nd quarter of 2016?
There’s more major currencies doing the same thing. It’s autopsy time.
I said here months ago; the Fed moved out of the market, the curve would flatten, fair value was 2.6, and ‘if’ the curve went flat it would be around 3.5 when it did. Currently, my model still says 2.6.
Crazy and I agree
We are one recession away from NEGATIVE short-term rates and a complete collapse in long-term rates. Where they go after that and when is anyone’s guess, but today’s holders of Treasury duration will have at least that one more massive profit-taking opportunity to look forward to. What will happen to equities in the next recession, given the obscenely over-leveraged condition of their balance sheets, will not be pretty. Right now, both the stock and bond markets are ignoring any possibility of recession, 104 months into this “recovery” and with the Fed raising interest rates. Crazy.