Further Yield Curve Inversion “a Given”

Or so says the Treasurys team at Jefferies & Co. in New York.

I cannot say I disagree. The 10-year Treasury is looking to trade between 4.48% and 4.62% this week.

Further, with at least one and likely two and possibly three and an outside chance of four more Fed Reserve tightenings, the curve is likely to invert further:

"Market participants are having an easier time swallowing the idea that short-term rates are likely to remain higher for a while than longer-term ones. Some participants have said they expect this aberration, known as a yield-curve inversion, to last for the rest of the year.

Late Friday, the two-year Treasury was yielding about 0.12 percentage point more than the 10-year Treasury and 0.15 percentage point more than the 30-year Treasury.

The Treasurys team at Jefferies & Co. in New York said further inversion of the yield curve is basically a given.

That is because government sales of $22 billion of two-year Treasurys tomorrow and $14 billion of five-year Treasurys Thursday will likely add pressure to those maturities and send their yields higher. Month-end buying by longer-term investors who need to match their portfolios to extensions in benchmark indexes will likely support 10- and 30-year maturities and send those yields lower."


Source:

Treasurys May Remain Steady As Yield-Curve Inversion Persists
SHAYNA STOYKO
WSJ, February 20, 2006; Page C10
http://online.wsj.com/article/SB114040272292478175.html

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  1. ilsm commented on Feb 21

    My feel for short bonds is: what if long rates go way up in a year or two then I make it the short call.

    I hold no longer than one years now.

    If many feel long rates will go up why buy them now?

  2. todd commented on Feb 21

    my question is how many rate hikes will it take to roll the market?! I can’t see the Fed stopping until someone bleeds.

    interesting comments about housing and oil in the Fed minutes…. for a while it seemed the Fed was targeting the housing “bubble” and now they seem to be fixated on oil prices. I think the Fed is a lot more interested in asset inflation than they have let on.

    Anyway, gold is a great indicator of future interest rates… If that relationship holds: LOOK OUT! We might end up with an inversion of historical proportions.

    BTW – does Greenspan really believe that world instability is behind gold prices?!! Is this guy in denial or what? How about three years of easy money there buddy? Yikes. I know that story hit 2-3 weeks ago, but I’m still in shock.

    The economy looks pretty strong to me, but every market crash/panic is preceded by a period of easy credit. I trade only on the short side because I think going long is just too risky right now.

  3. Steven commented on Feb 22

    Can we be sure we are going to face a recession in some form if the inversion of the long-term yield curve getter more inverted? previously we are only witnessing the flattening of the yield curve and now, we are facing a steep inversion day by day after the auction of the 30- year bonds by the Treasury and under such a trend and coupled with the continuation of the interest rate hike, I tend to believe we are close to a recession in some form particularly if the Real Estate Market fizzle out in view of the interest rate hike as well as the inversion of the yield curve getting stiffer and stiffer every day.

    Steven Soh

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