Several readers asked me to comment on the possibility of a yield curve inversion.
An inversion occurs when shorter term rates have a higher yield than longer dated rates. Typically this is a strong recession warning.
Let’s start with a look at a couple of yield curve charts.
Yield Curve Monthly
Judging from the above chart I see little reason to believe there will be any inversion at the long end of the curve or between the long end of the curve and the short end of the curve.
Although yield curve inversions signal recession, yields are too low for the curve to invert.
Yield Curve 3-Months to 5-Years
Curiously, there was a very tiny inversion between between 6-months and 1-year on February 2. On that date the yield on one year treasuries was less than the yield on 6-month treasuries.
The amount was not even a full basis point (0.01 percentage points). The above chart shows they touched.
If the Fed hikes twice, I would expect portions of the short end of the curve to invert.
Yield Curve Spreads
- 3-month to 6-month spread: 12 basis points
- 6-month to 1-year spread: 14 basis points
- 1-year to 2-year spread: 21 basis points
- 2-year to 3-year spread: 12 basis points
- 3-year to 5-year spread: 28 basis points
Even one hike of 25 basis points could cause an inversion. If the Fed does hike twice, I would expect multiple inversions. The likely places are the 6-month to 1-year spread and the 2-year to 3-year spread.
Mike “Mish” Shedlock
30 year rates lower than 30 day rates and both are negative. Take me home, Jesus.
If prices are plunging…and they have been all year…who’s buying the debt? Whoever it is they are not using dollars to do it.
So yet again we find ourselves trying to explain “the mysterious rise in Yen…
The Fed may be preparing for the unthinkable — negative interest rates in America
“Negative interest rates are spreading like a virus. Central banks in the Eurozone, Switzerland, Sweden, and Japan all have below-zero policy rates. “NIRP,” as economists call a negative interest rate policy, is a desperation move-but the only move those central banks have. The Federal Reserve hasn’t followed-yet. When the next recession strikes, I believe Janet Yellen will choose to break the zero lower bound. The rationale was laid out in Jackson Hole. Look behind the headlines and you’ll see the Fed already preparing for NIRP.”
http://finance.yahoo.com/news/feds-janet-yellen-mulls-negative-interest-rates-183711629.html
As likely as not, you are right. What troubles me more than negative rates per se, is that all these actions are taking place without an explicit authorizing vote in the Congress. The FED has just assumed the power to setup a Totalitarian Monetary regime. I guess, if you can create money out of thin air, then why not create a Monetary Dictatorship out of thin air and rule the country and its people in this way. It is a bold, arrogant and corrupt seizure of power. Coupled with incompetence, this FED governance will soon be seen as going beyond tyranny.
… and just to add a bit more meat to this conversation, notice that these interest rates seem to be coming at a time when governments all around the world are hitting the end of the rope on their own debt. Governments exist with the permission of their people and what happens when governments are so overdrawn they have to cut back on defense and basic services… what happens is a broken contract. We seem to be entering that door right now.
“Even one hike of 25 basis points could cause an inversion.”
In other words, the Fed ain’t gonna hike.
Or they will hike after they have figured out a believable excuse for creating an inverted yield curve.
Deflationary healing seems to be in the wind. Nearly the whole world hopes so.
However, as there is no law yet to take out the central banksters, hope is tentative at best.
The inflationists have dashed it so many times before.
How does it all end?
How does unlimited printing of fiat money and zero to negative interest rates end?
How does destroying the savers and the producers end?
How does rewarding the borrowers, those in debt and those at the front of the money chain end?
In misery, ruin and bankruptcy.
And in war.
Sounds like our government is only going to serve it’s own wants and our needs are out the window.
I’ve previously commented about the same sort of ratio on Amazon:
Trump or Clinton? Why CafePress’ sales might be the most accurate presidential poll
http://www.bizjournals.com/louisville/news/2016/09/02/trump-or-clintonwhy-cafepress-sales-might-be-the.html
Excerpts:
The Louisville-based internet retailer (NASDAQ: PRSS) sells loads of political gear on its website, and keeps track of which candidate’s stuff is selling more. It’s sort of like a poll, but Durham said the numbers are more accurate. Not everyone who responds to a traditional poll will actually vote on Election Day, but CafePress customers probably will.
So far this year, Clinton-bashing merchandise sales have been a whopping 814.88 percent higher than that for anti-Trump merchandise.
Fundamentals need not apply in this Brave New World of Central Planning.
When I looked mid day friday, the long rates ticked up a bit and the shorter rates ticked down-FWIW–and moreso we are living thru rather unusual times. We could just as easily see the Fed raise rates as lower them–if for no other reason that The Fed is losing control. Not much seems to make sense anymore.
.
.JACKSON HOLE, WY
” Global central bankers.. unite in plea for help from governments ”
” But they also are hunting for ways to jolt the economy out of its doldrums, and a fiscal push is a possible tool.
In a lunch address by Princeton University economist Christopher Sims, policymakers were told that it may take a massive program, large enough even to shock taxpayers into a different, inflationary view of the future.
“Fiscal expansion can replace ineffective monetary policy at the zero lower bound,” Sims said. “It requires deficits aimed at, and conditioned on, generating inflation. The deficits must be seen as financed by future inflation, not future taxes or spending cuts.”
http://www.reuters.com/article/us-usa-fed-fiscal-idUSKCN1120SU
.
I hate semantics arguments but you are describing a ‘kink’ in the curve and not an ‘inversion’. (full contango, to full backwardation) I highly doubt curve will invert until it’s over 3.5%