it makes the yild curve sharp up. did not get it. what is the market's point? ZT last time dropped to 109'247, then bounced to normal level. ZB already broke through old low. 2yrs note's rate is just 0.37%, like give momey for you to play! if someone wants me to lend, atleast charge them 5%~10% for two yrs term. expert, any explainations?
1) The 2-year note is more closely "anchored" to FED monetary policy at the front-end of the yield curve. 2) The bonds, at the back-end of the yield curve, aren't anchored in the same way. They can go up OR down as much as they want. 3) The bond market can be discounting a "tapering" happening sooner rather than later or even a tightening which should catch nearly everybody by BIG surprise. :eek:
Indeed... I just couldn't understand the question (if there was one), sorry. I guess the question was "why does the curve steepen so much", to which you have provided an answer already.
after I read through many documents. I now clear about the picture of treasures. how they work,how they create liqidity. so far, the fed funds rate is nominally zero. but the inter-bank overnight borrowing rate is the fed's effective rate, the last resort is go to fed for borrowing (the rate is set by them, higher than the effective rate).theoretcially the near term rate willnot exceed the rate set by FED? months ago, china's bank overnight effective rate shoots to 6.2%, and the central bank did not want to lend out money. I am thinking we may have this happening? if the effective rate shoots to 1%, how much those 3mothbill or 2ys note will worth? like 99- something?
No, the Chinese rate that you're reading about isn't similar to the FedFunds effective. The FedFunds effective rate can move away from the FedFunds target rate set by the Fed somewhat, but for the two rates to diverge significantly is a very unusual occurrence. In summary, the probability that the FedFunds effective actually goes to 1% w/o the Fed hiking rates is vanishingly low.
you can't compare what happened in china recently to what is happening here. what happened in china recently was the new government racking the shadow banking over the coals, if we've done anything here it is bend over backwards and do a triple flip all to help out our shadow banking system whenever it sneezes.