Checking Back In on the Yield Curve

-edited

It's been about a month since I last posted on the yield curve. Let's take a current snapshot.

US Treasury Yields 1-Year to 30-Years

The 30-year long bond set a new record low end-of-day yield of 1.94% in late August.

Yields then went on a tear, with the 30-year scorching up to 2.37%. In that time, the yield curve remained strongly inverted throughout. Note the 1-year yield (pink line) was higher than the 10-year yield (orange line) through early October.

It was not until early November that the yield curve mostly uninverted. Only two small inversions remain now as shown in the lead chart.

US Treasury Yields 2000 - 2019-11-19

The larger picture shows not much has changed. Bounces in yields come and go.

Attitudes, however, have changed. People have written off the recession because of steepening of the yield curve.

Rate Cut Odds

The financial markets have written off interest rate cuts by the Fed all the way until June of 2020.

Day of Reckoning

As part of the amazing complacency, Fed Chair Jerome Powell Says "Day of Reckoning" Far Off

Color me skeptical.

Note that GDP Estimates Crashed on Dismal Economic Reports.

And in particular, Freight Volumes Negative YoY for 11th Straight Month, sounding a strong recession warning.

Mike "Mish" Shedlock

Comments (19)
No. 1-9
Greggg
Greggg

The Fed is not going to tell us for at least 2 years, which bank/banks are getting the repo money either. Dodd Frank guaranteed the continual bailouts (or bail ins) without further congressional approval.

wootendw
wootendw

"People have written off the recession because of steepening of the yield curve."

The Fed has switched gears from reverse to forward, meaning they're adding more (or subtracting less) liquidity. This may delay the recession and, more likely, the stock market falling. We will probably have to see some other economies and markets crash before the US does, especially as the investors in other countries embark on a "flight to quality" here, first.

TimeToTest
TimeToTest

I have a feeling things are just getting started.

I don’t think this is the end. I don’t think we are even at the end of the beginning with crazy monetary policy. Credit is the ultimate moral hazard. It always leads to printing the second moral hazard.

Mish, I think you remember the Euro saga with Greece. Chicken little and the end is near type thing. I should have bought Greek bonds but I thought you were right on the money.

What makes anyone think all the sudden central bankers or going so say “ Well we failed. Let’s do nothing now.”? I think Mr. Powell understand what he has at his disposal.

Realist
Realist

Yep. Slow growth continues. Ten years and counting. Governments and central banks continue to do whatever is necessary to “keep the balls in the air”. If you think you can predict when the next ball is going to be dropped, then good luck to you. My expectations for “slogflation” going forward are unchanged.

The long term trend is still lower and slower, but there is no reason to expect a recession worldwide anytime soon. Individual countries or regions might dip into mild recession here and there “eventually”, but nothing catastrophic. (Australia has gone 28 years since their last recession.)

Of course, this all assumes no shock or black swan event. My biggest worry continues to be Trump expanding his trade wars and causing a big enough disruption to tip things negative.

stillCJ
stillCJ

Editor

A very gradual but steady economic uptrend seems to me to be ideal.

njbr
njbr

Monetizing the debt....

.....There we find that very same T-bill [$4 billion] with the CUSIP 912796WL9 showing up as having been purchased by the Fed Nov 5, 2019 — the very date of its issuance....

via https://www.peakprosperity.com/the-federal-reserve-is-directly-monetizing-us-debt/

Tony Bennett
Tony Bennett

The Large Scale Asset Purchase / QE (oh, that's right. Not QE) targeted the short end yield curve ... of course, that would steepen the curve. For now.

Maximus_Minimus
Maximus_Minimus

Is the forward guidance and yield curve manipulation equivalent to the soviet 5-year plan? Curious minds want to know.

Christopher-deRoetth
Christopher-deRoetth

has the predictive damage been done already? It was inverted for more than 10 days....