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.
Better yet, look square at it because this is the market, not ideology, making the rules. I don’t want to pile on (ref: Tom McClellan’s guest post) but this is extremely gold unfavorable with yields up and short term yields up way more. Insert here the boiler plate about not taking any one day’s reading in a vacuum… but then consider the spreads have been degrading nearly every day for a week now.
Gold will get where it is going one day, but not until fundamentals come back in line.
Today the curve is up just a bit with both the 10′s and 2′s down in yield. With the 2′s down more than 10′s, the implication is that players are still lurching toward liquidity and risk ‘OFF’.
Here’s the state of the thing on the big picture at yesterday’s close…
Yields are up with the curve flattening in a gold unfriendly manner today.
The spread between 10′s and 2′s is widening again today and that is good for gold and not so good for the stuff most people cheer for, like the stock market and US economy. Again, I remind you that no one day should be taken in a vacuum, but this is now two days in a row of Yield curve strength strung together.
This morning’s micro management shows the 10 year to 2 year curve is bumping up as of 8:00 US ET, as 10′s drop less than 2′s.
Guest Post by Michael Ashton
 I have to claim credit as being one of the first and maybe loudest when it came to talking about yield spreads before the recent drop in the yield curve. But Mike Ashton has professional experience dealing in the credit/debt markets as I recall. His post is very interesting to a geek like me, and should be to all market players because the interplay between Treasury rates is key; even more so than any individual markets we may be micro managing. So many things spring from interest rate relationships.
I saw a story on MarketWatch on Monday which declared that the “Treasurys most sensitive to rising interest rates” had been ditched by investors while those investors instead were “gobbling up longer-term securities,” causing the curve to reach its flattest level since 2009. I thought that was interesting, since an inverted yield curve is a valuable indicator of potential recession.
There is a lot of talk now about a flattening of the yield curve. This talk has been among the most intense right here at the website you are reading at this moment. A flattening curve is commonly viewed as bad for gold, and according to Mark Hulbert, is an indicator of a coming recession.
But is the curve really flattening or is this all hype based on Janet Yellen’s press conference comments? Here is a chart the likes of which we have been using in NFTRH for many months now, the 30 year vs. the 5 year yield.
MarketWatch shows a similar chart in its article…