Posts Tagged ‘5/30 Yield Curve’

Notes From Underground: Pour a Yamizaki, Enjoy 30 Minutes of Harris and Crudele

June 19, 2017

This morning I had the pleasure of sitting with a professional trader and discussing several themes that have coursed through NOTES FROM UNDERGROUND for the past several months, if not years. In staying with the Crudele hit I want to spend some time on offering some views on the significant flattening of the 5/30 curve during the last few weeks. More importantly, the 5/30 curve broke out to new multi-year lows, blowing through the previous low of 100.98. Today we closed at 99.5. The 2/10 curve was very stable and closed at 82.5 basis points holding above last weeks lows. Why is the more SPECULATIVE-oriented curve flattening more than the conventional investment directed curve?


Notes From Underground: Hey Fed, Are We At Absolute Zero?

October 28, 2015

In the realm of physics, absolute zero is the temperature at which every element freezes and molecules are no longer in motion. The FED and other global central banks seem to be mimicking their scientific betters by keeping rates at a low enough level to prevent the movement of capital from their balance sheets and into the real economy. Yes, the ECB, Riksbank, Swiss National Bank are at negative interest rates but it is the velocity that measures absolute zero rather than the relative level of interest rates. This brief analysis is based on the CONTINUED FRUSTRATION of trying to understand the basis of FED communication and signalling to the markets.


Notes From Underground: CNBC Santelli Exchange — Flattening the Yield Curve

December 28, 2014

Yra on CNBC December 24, 2014Click on the image to watch Rick and I discuss the U.S. 5/30 YIELD CURVE and how there’s no market signals but central bank signals.

Notes From Underground: Wishing Everyone a Very Festive Holiday Season

December 23, 2014

TO MY READERS: This is the festival of lights in which the bright lights of the menorah and the festive lights of Christmas Trees and ornaments seek to brighten the day when darkness envelopes the world. It is no accident that December 21 is the shortest day in terms of sunlight. Let’s hope that there is less darkness and more light in 2015. In terms of trading and investing I hope that Notes From Underground has provided some light in an effort to sort through the global macro scene. In the coming days I will put forward some thoughts on Europe, Russia, Oil, and, of course, yield curves.


Notes From Underground: What Is All The Yellen About?!?!?

March 24, 2014

The financial markets have been pondering the effects of Chair Yellen’s March 19 press conference and trying to discern what the true meaning of the “six month” import of rate rises beginning at the end of the tapering process that the Fed has initiated. The move in the short-end of the yield curve has revealed what I have long thought: The middle part of the yield curve has been badly mispriced as many hedge funds and fixed income buyers have comfortably bought more term instruments in the shadow of the Fed’s massive buying program. Venturing into the valley of the three- to five-year duration has not been the “safe harbor” that many thought and the result has been a post Fed meeting massive move in the 5/30 part of the yield curve.


Notes From Underground: The Yield Curves Were Crowded (Nobody Goes There Anymore)

December 22, 2013

The yield curves were the star performers after the FOMC statement and the Bernanke press conference. The 5/30 (bottom) curve was the most volatile but the 2/5 (top) and 5/10 curves also provided great volatility. It seems that while everybody parked money in the FIVE-YEAR NOTE as the safest place to be during the FED’s non-tapering act, the FIVE-YEAR NOTE has become a bastard child and is being orphaned. Why? In my opinion the FREE PARKING place that the fives provided for curve players has now been placed under the microscope and it seems that it is not as safe in a world of “LESS” Fed asset purchases. The FIVE YEAR has a flat to negative real yield. This means that if you expect inflation to be running at 1.6% and the yield on the five-year is 1.65% you are breaking even on a real return basis. The 10-year at 2.95% provides you with a real yield of 1.3% over the inflation rate. The problem is that you run TERM RISK by going out further on the curve.

The question that BOND TRADERS ask is: “Am I being compensated enough by the premiums offered further down the time line or duration?” The FIVES have said no to the question but the 10s and 30s have found some buyers, or at least shorts are being forced to cover. As I have warned for four years, the FED has caused great harm in the BOND market through its massive large-scale asset purchases or, QE. Year end and the thin holiday markets will exaggerate any moves  so tread cautiously into the credit markets. The FIVES though will be the keystone of the price movements for the very near term so be attentive. Put in charts I sent –{if we have a shorter term 5/30 that might be better}.

U.S. 2/5 Yield Curve 5-30chart3yr-gif

***In Monday’s Financial Times, columnist Wolfgang Munchau has an article criticizing the newest agreement coming out of Brussels on the creation of a EU Single Resolution Mechanism (SRM). Munchau is a Europhile, who has until recently been a cheerleader for all things emanating from Brussels. When a member of the privileged cast heaps criticism on a major decision, I advise paying attention. The article, “How To Prolong A Banking Credit Crunch,” and it takes the EU finance ministers to task for proclaiming a major victory in their efforts to create a unified financial system throughout the EU, which means a major backstop is in place to rescue any banks or financial institution that is in trouble. The key to the SRM is that it requires Germany to be the co-signer for all the legacy debt presently on the books of European banks from Greece to Portugal.

In listening to news reports on Friday, the spin was that Germany has bent and agreed to finance basically what would be a FDIC. Munchau writes: “Some of the finance ministers tried to put a brave face on this humiliating defeat, pretending that Wolfgang Schaeuble, the German finance minister, had given ground on an important principle. But that is not the case at all. The banking union that was agreed was the banking union Mr.Schaeuble always wanted. He does not want German taxpayers to pay for the restructuring of banks in other countries. And he does not want the European Commission, or anybody else, to close down a German Bank. If ever there was a game, set, match victory in EU history, this was it.”

As we enter 2014, the European financial crisis is far from resolved for it will only reach some certainty of outcome when the Germans, Dutch and others accept the concept of a EURO BOND backed by the full faith and credit of the economically strong European nations. If the Germans do agree to such an instrument, what will be the cost extracted from the rest of Europe? The German push for austerity is the effort to get the budgets of the peripherals under control so the German policy makers can at least provide German voters with an improving situation. But as we have seen, AUSTERITY sets into motion NEGATIVE FEEDBACK LOOPS. Less spending means slower growth, which means less tax revenue with increased unemployment. Yes, the EURO currency continues to strengthen but that is a function of liquidity flows as the ECB’s balance sheet shrinks while the U.S. Fed’s continues to grow. Now that the German’s have blocked any immediate hope of a SRM to backstop the banks, will Mario Draghi become more assertive in his efforts to provide the liquidity that will be needed to forestall an EU financial crisis?Welcome to 2014.

***I want to wish all my readers a very Merry Christmas and a happy and healthy New Year. I deeply appreciate the feedback and conversation that takes place within the bounds of Notes From Underground. All the best for the New Year — Yra Harris


Notes From Underground: FED, Dealing Three Card Monte on the Potomac

December 19, 2013

In a bow to acronym manufacturing, I placed the idea of TAPER ON, TAPER OFF (TOTO). We got a taper but it was offset by the Fed’s forward guidance on the unemployment threshold.In the FOMC statement the FED clearly said, “The Committee now anticipates, based on the assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well PAST THE TIME that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal.” The emphasis on the phrase PAST THE TIME is to highlight that the Fed will keep moving the threshold on what will constitute an acceptable level of employment, if not in words but in deeds.