Curve Watchers Anonymous notes a continuing bearish flattening of the yield curve as shown in the following chart.
click on chart for sharper image
A bearish flattening occurs when the curve tightens with yields generally rising. Conversely, a bullish flattening occurs when the curve tightens with yields generally falling.
Since early November, 5-year treasury yields have risen about 60 basis point, 10-year yields about 45 basis points, and 30-year treasury yields have risen perhaps 5 basis points.
Once again we can see the results in today’s action with thanks to Bloomberg.
Buy the Rumor Sell the News
Note the continued unwind of the “sure-thing” treasury bet, with the Fed concentrating its purchases in the 3-to-7-year range hoping to drive down rates, and everyone front-running the trade. That trade is now unwinding.
Clearly this reaction is not what Bernanke wanted at all.
Reflections on “Relative Value”
Check out that .81 yield on 3-year treasuries. On October 18, investors scarfed up $750 million of 3-year Walmart Bonds yielding .75% for the stupid reason they yielded more than treasuries. Now treasuries are yielding more.
This is what happens when investors chase “relative value” instead of asking if there is any real value at all.
The same idea applies to those chasing the stock market at these lofty levels on the basis “stocks are cheap relative to treasuries” or some other nonsensical reason to justify valuations.
There is no value, only unwarranted bullishness.
Mike “Mish” Shedlock
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