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Reference Inflationary Yield Curve Steepening? from January 11.
In my opinion, after the secondary extreme inversion of the 10-2 yield curve in July a new yield curve steepener was in the bag. That is exactly what the curve has been doing since the secondary inversion.
While it is far from the only important indicator for the markets, the Treasury bond yield curve (10yr-2yr) is very important because it takes what is probably the most important market for macro signaling (the bond market) and gives us a view into the dynamics between short and long-term yields. In the bond market, duration means a lot.
For one example, long-term bonds are much more vulnerable to inflation’s negative effects than short-term bonds. Short-term bonds also act as a liquidity haven during deflationary market crises. Long-term bonds can work quite well during disinflationary times and pay out better income than short-term bonds, but in a full out deflation scare when the very system (and its exponential debt load) comes into question insofar as you want bonds, you want short-term (in my experience 1-3 year Treasury, T-bills and Treasury Money Market). In other words, relative safety.
(more…)A yield curve can steepen under inflationary or deflationary pressure.
Inflationary: Generally, long-term yields rise in relation to short-term yields as both rise nominally, or more importantly long-term yields rise nominally.
Deflationary: Short-term yields decline in relation to long-term yields, as both decline nominally.
(more…)In fact, with patience it could turn out to be like shooting contrary fish in a barrel. The stock market rally – which NFTRH had anticipated a year ago on a larger basis and since October of this year for its next leg on a more compact time frame – is doing a wonderful job of holding to its seasonal pattern (see below). The rally is sucking in the holdout FOMOs who, one by one are falling for the dual pleasantries of a softening Fed and by extension, a Goldilocks-like “soft landing” scenario for the economy.
I am not sure if this is Tim’s cup of tea or not (I’m more of a chai guy – Ed.), but if he decides to publish it you will be presented with a guy going on and on, geeking out about economic/market indicators, stocks, gold and the gold mining sector. It is also posted at nftrh.com, along with plenty of other public material. As a side note, I coughed a few times and couple of those coughs sound like they came out of the wrong orifice. I assure you, they were normal coughs out of the proper orifice. Just want to disclaim that up front. 🙂
