Inversion Alert! Treasury Slope Plummeting Towards 0 BPS

By Anthony B. Sanders

Corporate Debt To GDP May Be At Credit Cycle High

One of the effects of The Federal Reserve’s zero interest policy (ZIRP) was the massive expansion of both consumer and corporate debt. The US may be at a credit cycle peak (Corporate Debt-to-GDP).

corporate debt to gdp 2

Which brings me to the UST 10Y-2Y slope, plummeting towards inversion (now at 24.5 BPS). The last time we saw the 10Y-2Y slope so flat was in early August 2007, 4 months before The Great Recession began.

Continue reading Inversion Alert! Treasury Slope Plummeting Towards 0 BPS

US Yield Curve Continues Flattening To 26.4 BPS…

By Anthony B. Sanders

…As Net Shorts in 10-year Treasury Futures Hit Record Levels

It is difficult to predict how the trade scuffles between the US, China and Europe will play out.

But what we do know is that the US Treasury 10Y-2Y slope continues flattening, now down to 26.4 basis points.


Meanwhile, net shorts in 10-year Treasury futures positions hit record levels. Net short positions on the 10-year future rose to more than half a million contracts in the week ended July 3, according to the latest data from the Commodity Futures Trading Commission. These positions were built as the 10-year Treasury yield fell to around 2.83 percent on July 3, and it’s currently around 2.86 percent.

Continue reading US Yield Curve Continues Flattening To 26.4 BPS…

Why the Yield Curve Changes Direction Ahead of a Recession

By Steve Saville

Conventional wisdom is that an inversion of the yield curve (short-term interest rates moving above long-term interest rates) signals that a recession is coming, but this is only true to the extent that a recession is always coming. A reversal in the yield curve from flattening to steepening is a far more useful signal.

What a yield curve inversion actually means is that the interest-rate situation has become extreme, but there is no telling how extreme it will become before the eventual breaking point is reached. Furthermore, although there was a yield-curve inversion prior to at least the past seven US recessions, Japan’s most recent recessions were not preceded by inverted yield curves and there is no guarantee that short-term interest rates will rise by enough relative to long-term interest rates to cause the yield curve to become inverted prior to the next US recession. In fact, a good argument can be made that due to the extraordinary monetary policy of the past several years the start of the next US recession will NOT be preceded by a yield curve inversion.

Previous US yield curve inversions have happened up to 18 months prior to the start of a recession, and as mentioned above it’s possible that there will be no yield curve inversion before the next recession. Therefore, we wouldn’t want to be depending on a yield curve inversion for a timely warning about the next recession or financial crisis. However, the yield curve can provide us with a much better, albeit still imperfect, recession/crisis warning in the form of a confirmed trend reversal from flattening to steepening. This was discussed in numerous TSI commentaries over the years and was also covered in a blog post last December.

Continue reading Why the Yield Curve Changes Direction Ahead of a Recession

Treasury 10Y-2Y Slope Flattens To 35.5 BPS…

By Anthony B. Sanders

…Eurodollar 3M Futures Spread Falls To Lowest Level Since 2000 (Europe’s Troubles In One Chart)

The US Treasury 10Y-2Y slope keeps falling … as The Fed keeps raising their target rate. It has flattened to 35.5 basis points.


Meanwhile, the 3 month Eurodollar spread to  the lowest level since 2000.

Continue reading Treasury 10Y-2Y Slope Flattens To 35.5 BPS…

Goin’ Down! US Treasury 10Y-2Y Curve Flattest Since September 17, 2007

By Anthony B. Sanders

10Y Term Premium Remains Negative

Yes, between Italy’s political problems and trade turbulence, the US Treasury 10Y-2Y curve is goin’ down. In fact, it is the flattest since September 17, 2007.


And the 10-year Treasury term premium remains negative.


I wonder why the US is so tentative about issuing covered bonds?

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The Relationship Between the Yield Curve and the Stock Market

By Charlie Bilello

With the yield curve hitting its flattest level of the expansion last week, many are wondering what impact that will have on the stock market.

Data Sources for all tables herein: NBER, FRED, Bloomberg. Using monthly data.

The yield curve is a leading indicator of the economy, but the stock market is one as well. So to provide advance warning for stocks, the yield curve must be a longer leading indicator.

Looking back at history, that does seem to be the case. The yield curve has inverted before 6 out of the last 9 recessionary stock market peaks, with an average lead time of 8 months.

Continue reading The Relationship Between the Yield Curve and the Stock Market

The Yield Curve’s Round Trip

By Jeffrey Snider

The current US Treasury yield curve in between the 5-year and 10-year maturities is today just 15 bps. It had dropped down to this level of flat about ten days ago. When it did, it had been the first time in almost eleven years. The last time the 5s10s was 15 bps? August 8, 2007.

It’s hard not to notice these things, depicting as they might a completed cycle or round trip. August 8 was the day before the system broke for good, and so the Treasury curve was then steepening after having been inverted for a good length of time beforehand. That kind of curve action, as my colleague Joe Calhoun rightly points out, is accepted as the worst kind.

You never want to see short-term rates fall faster than those of the long end. It indicates things are about to get serious, or at least that is what the market expects (and it has been the market, not Economists and policymakers, that have been correct about all this).

While true in the sense of the future short-term direction, I think there is a level worse below such bear steepening. A much more desperate condition is what we find now, this long end flattening. What’s missing from analysis is the other dimension.

Nominally, rates are rising across the Treasury curve. They are increasing much faster and farther at the short end than the long. That seems to be consistent with what’s normal, of course, and we have expected as much at whatever point the Fed had finally gotten around to its “exit.” But not all flattening is the same, either.

Continue reading The Yield Curve’s Round Trip

Good News! St Louis Fed ENI Q1 Real GDP Growth Projected To Be 3.50%!

By Anthony B. Sanders

But Yield Curve Signals “Winter is Coming!”

St. Louis Fed Economic News Index, their real GDP “nowcast,” projects Q1 growth at 3.50 percent, up from its previous week’s projection of 3.36 percent.


As former Fed Chair Ben Bernanke said in Sintra, Portugal, last year, the current aging economic cycle “appears to have room to run.”

Yes, the Treasury yield curve flattening verifies that the economy has “room to run.” The 10Y-2Y spread (or curve slope) is narrowing like it did in 2005, two years prior to The Great Recession (that started in Q4 2017) according to the National Bureau of Economic Research (NBER).

Continue reading Good News! St Louis Fed ENI Q1 Real GDP Growth Projected To Be 3.50%!