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US Treasuries, Yield Curves


PeptoAbysmal

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Same thing is happening in the UK, but at a slower rate (the continuation of ZIRP by the BOE artificially suppresses the short end the most):-

UKGiltYieldCurve.png

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2 hours ago, spygirl said:

Id not read much into it.

Bonds yields have been distorted soo much by QE they tell you nothing.

Normality will return soon.

 

Normality resumes when cease being interested in swapping their real goods with UK assets (whether shares, property, gilts, whatever).  At that point it is probably too late and the currency will collapse.  How low it takes to get to that point is unknown.

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8 hours ago, spygirl said:

Id not read much into it.

Bonds yields have been distorted soo much by QE they tell you nothing.

Normality will return soon.

That's what seems to be happening in the USA, with the end of QE, the shrinking of the Feds balance sheet, and rising interest rates.

If there's a recession or another crisis at the end of next year I wouldn't be surprised.

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1 minute ago, PeptoAbysmal said:

That's what seems to be happening in the USA, with the end of QE, the shrinking of the Feds balance sheet, and rising interest rates.

If there's a recession or another crisis at the end of next year I wouldn't be surprised.

I do t think there will.

The deChinaing of the West is seeing huge rise in work, demand

The demand from china on western goods is limited to oz iron n coal and german machine tools. China imports fuckall else.

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Bernanke was insane.

Yellen maintained the Fed's balance sheet (she would have been buying up treasuries to replace those on their books that were maturing).

Powell, doesn't appear to be conducting any direct Fed interventions in the treasuries market at all, and is raising interest rates (3 trillion left in assets to mature/dispose of. At 400 billion in 10 months, that 40 billion per month, or just over 8 years to return the balance sheet to normal).

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27 minutes ago, PeptoAbysmal said:

Bernanke was insane.

Yellen maintained the Fed's balance sheet (she would have been buying up treasuries to replace those on their books that were maturing).

Powell, doesn't appear to be conducting any direct Fed interventions in the treasuries market at all, and is raising interest rates (3 trillion left in assets to mature/dispose of. At 400 billion in 10 months, that 40 billion per month, or just over 8 years to return the balance sheet to normal).

Not worth $3trillion and falling, when you buy so much you are the market. Maybe they hope to make up for losses on the charged  interest rate.

https://www.bloomberg.com/news/articles/2018-12-12/fed-piles-up-66-billion-in-paper-losses-as-it-faces-trump-wrath

The Federal Reserve is piling up unrealized losses on its $4.1 trillion bond portfolio, raising questions about its finances at a politically dicey moment for the independent central bank.

The Fed had losses of $66.5 billion on its securities holdings on Sept. 30, if it marked them to market, according to its latest quarterly financial report. That dwarfed its $39.1 billion in capital, effectively leaving it with a negative net worth on that basis, a sure sign of financial frailty if it were an ordinary company.

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We've hsd a good discussion on this in the deflation thread but it certainly warrants a thread of it's own.

Shedlock had a couple of pieces on it lately

https://moneymaven.io/mishtalk/economics/second-yield-curve-inversion-today-did-you-catch-it-16rcr8-8vkGzXmJAVj2ttw/

I missed another inversion today. So did Bloomberg. A reader of mine caught it from a chart I posted.

In addition to the inversion between the 5- and 3-year yields. Today also sported a smaller inversion between the 5- and 2-year yields.

Thanks to reader Schaap60 for the accurate spot.

5-Year to 2-Year Inversion

 

https%3A%2F%2Fs3-us-west-2.amazonaws.com
 

 

For further discussion, please see First Inversion in Seven Years: Can a Recession be Far Off?

I repeat my assessment:

  • The classic recession signal that most follow is a 2-10 inversion. I doubt we see a 2-10 inversion before recession hits.
  • My call: There will not be the warning nearly everyone is waiting for.

Mike "Mish" Shedlock

 

 

First Inversion in Seven Years: Can a Recession be Far Off?

https%3A%2F%2Fs3-us-west-2.amazonaws.com
 

The 5-year to the 3-year portion of the yield curve inverted today. Inversion is typically a prelude to recession.

Yield Curve Produces First Inversion in 7 Years

I have been watching the 5-3 and 3-2 yield spreads for months expecting an inversion would first occur there. Today, that happened.

Bloomberg also caught it, noting Flattening Yield Curve Just Produced Its First Inversion.

The spread between 3- and 5-year yields fell to negative 0.6 basis points Monday, dropping below zero for the first time since 2007. It’s probably not the best-known measure of the curve. The 2- to 10-year gap may have that honor. But Monday’s move could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching.

Some analysts cautioned against reading too much into Monday’s inversion.

“It’s a minor part of the curve,” said NatWest Markets strategist John Briggs. “I don’t think it necessarily foreshadows anything.”

3-2 Inversion Coming Up

A 3-2 inversion is now in the batters box. I expect a base hit shortly.

Here are some charts that I have been watching. Fred is a bit behind on posting data so my charts date back to last Thursday.

Yield Curve Spreads 1980-Present

 

 

 

Yield Curve Spreads in 2018

 

https%3A%2F%2Fs3-us-west-2.amazonaws.com
 

 

Yield Curve Spreads October 19 - November 29

 

https%3A%2F%2Fs3-us-west-2.amazonaws.com
 

 

Change in Yield Curve Spreads

 

https%3A%2F%2Fs3-us-west-2.amazonaws.com
 

 

Curiously, the 10-7 spread rose since October 19 while the rest of the curve flattened.

I disagree with the opinion of John Briggs. This is a strong recession warning. With the next hike, I expect more portions of the curve will invert.

The classic recession signal that most follow is a 2-10 inversion. I doubt we see a 2-10 inversion before recession hits.

My call: There will not be the warning nearly everyone is waiting for.

Mike "Mish" Shedlock

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UnconventionalWisdom

I've started to perform this type of analysis ( learning python in the process as it's something I wanted to do anyway).

Here's the BOE's M0 showing that whilst there's not been QT, there is a change of tact.

 

 

BoE-Database_export.png

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5 hours ago, UnconventionalWisdom said:

Here's the asset purchases. I can't see them adding to them if the FED are tightening. 

linechartimage

Sterling weakness will continue to hamper any attempts at refloating the titanic.

5 hours ago, UnconventionalWisdom said:

I've started to perform this type of analysis ( learning python in the process as it's something I wanted to do anyway).

Here's the BOE's M0 showing that whilst there's not been QT, there is a change of tact.

 

 

BoE-Database_export.png

Thanks for posting the piccie.Paints a 100 words and saves diging through the data for the proles like me.

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