BTW, I have noticed that it is the front end of the yield curve that is accelerating [upward] faster than the longer durations recently, in order to flatten the yield curve. Is that observation right? nitro
I was wondering about that myself. It must be hard to sell his website subscription when you make 2 major market calls on several threads talking about his guru status and market knowledge and he is wrong on both of them. I guess that is why we have not seen him around in awhile.
Given the enormity of the recent mortgage-refinancing boom, which may exceed $2 trillion this year, and the fact that the market for mortgage-backed securities is the largest ($5 trillion) segment of the $20 trillion bond market, additional forced selling could easily occur and put upward pressure on rates (as interest rates rise, households refinance fewer mortgages, resulting in a lengthening of their average age. This effectively results in a rise in the average length of the maturities of portfolios that hold mortgage-backed securities, pressuring portfolio managers to make adjustments by selling Treasuries to shorten the risk-profile of these portfolios. Portfolios that fail to make these adjustments expose themselves to an increasing degree of price sensitivity to changes in market interest rates).
stockcharts.com has a cool dynamic yield curve chart (below link) you can click and move your cursor on the SPX chart to see what the yield curve was like at that time. (For example during the 2000 the inverted yield curve was sign of tight money)... Can see during different periods how Greenspan by manipulating the interest rates creates economic turmoil! http://www.stockcharts.com/charts/YieldCurve.html
The entire curve is shifting upwards but the long end is rising slightly faster than the "belly" or the "short-end." The curve is steepening, which as McCloud suggests, is it's "normal" state. The suggests normal, non-deflationary, economic growth. We'll see. Dr. Zhivodka
It reminds me of the adage "being right too early is the same thing as being wrong". He may be right over the long run about bonds ending up highter, but it's just plain stupid to fight a trend, even if it's a short term one.
The rapidly steeper curve is probably a symptom of the markets confusion over supply of the long end. Two months ago Greenspan was practically threatning bond shorts with statements about Fed repurchases. Now the talk suddenly is about resumption of the 30yr. Borrowing out on the curve might seem illogical in a steep environment but these frequent rollovers of short dated debt do cause liquidity concerns. The Fed can handle, probably even anticipate the 30yr trading 500bp to overnights but what do they do if in a crunch the 2yr suddenly trades like 300bp over funds! IMO the Treasury may percieve the higher costs of curve extension as a plausable tradeoff to the possible unmarketable deluge of these monthly 2 and 5 yr auctions.
it might have even been a C up day ? by the way ... what are the key round numbers in the 10 yr intraday between handles? I know numbers like 8 , 16 , 24 are sometimes important in the 30 yr intraday