Curve Watchers Anonymous is taking a hard look at the yield curve in light of the now odds-on market view of a March rate hike.

Before looking at the chart below, where do you think rates are relative to January 2014? Up, down, or sideways?

Yield Curve Since 1998

yield-curve-2017-03-01

The chart shows monthly closing values except for the current month.

Change Since January 2014

Duration 1-Jan-14 1-Mar-17 Direction
30 Year 3.96 3.06 -0.90
10 Year 3.04 2.46 -0.58
5 Year 1.75 1.99 0.24
2 Year 0.38 1.29 0.91
1 Year 0.13 0.92 0.79
30 Days 0.07 0.63 0.56

The 2-30 spread flattened by a whopping 181 basis points in just over two years.

The 2-10 spread flattened by 149 basis points.

A flattening of the yield curve is not good for bank profits. Rising 10-year yields since mid-2016 are not good for mortgages or housing affordability.

Not to worry, despite poor economic reports, Fed governors have stated: “This is a surprisingly strong economy.”

Surprisingly Strong Economy Links

  1. March Rate Hike Odds Surge to 80 Percent: New Standard for “Surprisingly Strong” Economy
  2. Inflation-Adjusted Spending Declines Most Since September 2009: Stagflation Coming?
  3. Construction Spending Unexpectedly Declines One Percent
  4. New Home Sales Rise Half of Economists’ Expectations, Supply Surges
  5. 4th Quarter GDP Unexpectedly Undershoots Consensus: What’s Ahead?
  6. Trade Deficit Unexpectedly Widens: Exports Sink, Imports Up Sharply
  7. GDPNow 1st Quarter Forecast Plunges to 1.8% Following Personal Income and Outlays Report

Somewhere in that set of links, there is hidden “surprising strength”. I leave it to the reader to find the surprises and report back.

Mike “Mish” Shedlock