Yield Curve Update

Weird goings on in the T bond market, with the 10-5 curve rising slightly but the 10-2 dropping hard.  Might it have something to do with poor 2 year auction demand?  This looks like a gap up from yesterday and a sag today (along with 10′s and 5′s).  To me, SHY continues to be a buy with yields up and a positive CoT structure for the 2 year Note.


10, 5 & 2yr yields from Bloomberg

Here’s the state of the yield curve compliments of Treasury…


Current yield curve from DoT

Inflation Signals Non-Existent by TIP-TLT

Another NFTRH 287 excerpt…


It’s a busy I chart, I grant you. But these are my favorite charts because in their busy way they try to tell stories. The story told by TIP (Inflation protected Treasury bonds) vs. TLT (regular long-term T bonds) is not one of inflationary concerns. Quite the contrary, TIP-TLT shows a break down in inflation expectations.

The gold ‘community’ does not publicize this because it is antithetical to the fundamental they most often tout for gold (inflation). In the short-term, a deflationary bout may indeed be a negative. But in the longer-term, a failing ‘inflation trade’ would be what eventually builds stronger fundamentals for the sector. Again, economic contraction (with gold rising not necessarily in nominal terms but in relation to most everything else) is what the sector needs. Moderate the inflation hysterics.

The above picture would be positive for US stocks if it results in a continued Goldilocks atmosphere, but last year Goldilocks held sway with TIP-TLT gently rising but muted. It is debatable how well she would do if this indicator of deflationary pressure keeps dropping.

CoT – Gold, Silver, Commodities & T Notes

Among its 29 pages of high quality market analysis, this week’s NFTRH (#287) reviewed the Commitments of Traders (CoT) structures of a few markets and their implications.


The above CoT graph clearly shows that gold has declined as the structure improved (red arrows). It then bottoms with the circled extremes and rises in conjunction with a degrading structure (green arrows). Gold is still on its journey toward bottoming.

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10-2 Yield Curve Flips

I don’t want to became a yield curve play-by-play announcer, but the spread flipped this morning in a lurch toward risk ‘off’ as yields drop with the 2′s dropping more.  What’s it mean?  Hey, these are manic, over played, over stimulated markets.  It means what it means… for this little moment in time.  I am just the play-by-play guy, not your Swami.  :-)


10.2 spread from Bloomberg