Ted Rises, 10Y-2Y Slope Flattens As US-China Trade Optimism Wanes

By Anthony B. Sanders

Curve Inversion Accelerates

Ted Day! The Ted spread (3m Treasury yield- 3m LIBOR) is rising … again.

tedday

Why?

The optimism that drove gains for riskier assets appears to be quickly dissipating as investors scramble to figure out exactly what, if anything, was agreed between the U.S. and China on trade at the weekend. Treasury Secretary Steven Mnuchin and President Donald Trump’s top economic adviser, Larry Kudlow, dialed back expectations and added qualifiers when asked about the outcome of talks between Trump and Chinese President Xi Jinping. China has said nothing about the commitment to remove car tariffs flagged by the U.S., nor did its statement mention the 90-day timeline for talks the Americans have specified.

In the Treasury market, all eyes remain on the yield curve after three-year yields climbed above those of their five-year peers on Monday, potentially foreshadowing the end of the Federal Reserve’s tightening campaign. The more closely watched part of the curve — the gap between two-year and 10-year yields — remains upwardly sloped.

Yes, but flattening like a pancake.

102trade

Or getting dunked in cold water like Ted.

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