In the blink of an eye, the yield curve is inverted once again.

The panic that drove 1 month treasury yields to 1.4% started to subside in the wake of many unusual statements made by major banks about the discount window (see Now we know who and why), and continued to subside in the wake of many rules changes by the Fed (See Mr. Practical’s Buzz on “New Rules“).

But the inversion never really went away if one measures it from the perspective of the official Fed Fund’s Rate. With the FF rate sitting at 5.25% there is an inversion of 85+- basis points on the five year treasury note. Mortgage watchers will note an inversion of 65+- basis points on the 10 year treasury note by that measure.

Although the Fed may have calmed some nerves with options expiration shenanigans and by inventing “New Rules” on the fly, Countrywide (CFC) is once again trading back around $20 (having risen to as high as $26 after hours on the so called Bank of America Bailout of Countrywide Bailout). I also see that housing inventory has risen yet again, this time to levels not seen since 1991.

Calculated Risk has some stunning charts in his post July Existing Home Sales.

Meanwhile members of Curve Watchers Anonymous just might be asking “Is this calm before the big storm?” I think so, and one of the reasons can be found in Prof. Zucchi’s buzz earlier today when he quipped “My sense is we are now approaching the point where price panic sets in“.

The expected price panic in housing that Prof. Zucchi referred to, or price panic in the stock market, derivatives, and/or or general panic anywhere will likely incite more panic moves by the Fed in response. But whether or not more panic is coming, it’s best to be prepared for it. And if you are going to panic, please remember the cardinal rule: Panic before everyone else does.

Mike Shedlock / Mish/