Quick Update, Gradient Comment

The Treasury yield flexure has continued its relentless flattening. The 5-/10-year gradient has hitting a novel post-crisis low. We should non move also surprised past times a flattening yield flexure during a hiking cycle, but at the same time, the stride of charge per unit of measurement hikes has been laughable.

Note: I accept been tied upwards amongst other projects (my SFC models mass is ready to move shipped for the finally editing pass), in addition to thence this article volition move extremely brief. I but wanted to permit readers know that at that spot volition move publishing hiatus until the weekend. (Although this is a gratuitous website, I desire to maintain to a regular writing schedule, especially on Wednesday.)


I accept non been doing a lot of occupation concern bicycle watching recently. I could easily move missing something significant. However, I would tend to translate the yield flexure activity equally a cast of capitulation. An investor tin entirely stand upwards beingness inwards negative direct positions for in addition to thence long. The flattening inwards the 5-/10-year flexure (for example) is but a writing downwardly of forrad rates to levels that are are closer to what has been realised over the past times one-half decade. In whatsoever event, the flexure is yet non that apartment inwards absolute terms; it is entirely close what used to move considered normal inwards the Japanese curve.

As always, the large query is: are nosotros close a recession? Modern recessions are the lawsuit of collapse inwards misguided fixed investment. (Historically, the inventory bicycle was plenty to trigger a recession.) One of the advantages of our tepid increase surroundings is that fixed investment increase has been tepid, in addition to and thence at that spot is less ask for it to move slashed. There for sure has been a lot of stupid investor behavior on display, but this stupidity has largely been an equity investor affair. Creating crypto-currencies generates a lot of headline chatter, but at that spot is non a whole lot of jobs or fixed investment beingness deployed.

I may comment afterwards on the fixed income pricing aspects of yield flexure analysis, but that volition move delayed. I commencement desire to write an article most analysing the Job Guarantee, which got sidetracked past times coin discussions (sigh).

(c) Brian Romanchuk 2017