Just a few quick points that are relevant to the markets at the end of the year:
1. Tonight I am including charts of the U.S/German two-year yield differentials. The U.S. two-year note is yielding 256 basis points above the German rate. This is relevant because both instruments are high quality assets that play an important role as collateral in the funding markets. I’ve also included a 25-year chart of the U.S. 2/10 yield curve. Note that the last two INVERSIONS occurred before significant equity market corrections. Does this current flattening portend a stock market correction? We can’t be certain because the role of the central banks has certainly created an investment environment where markets suffer from a lack of RISK PREMIA in all asset prices.
