Tuesday , August 20 2019
Home / Constantin Gurdgiev: True Economics / 3/1/19: Happy New 2019 or 2018 or 2008…

3/1/19: Happy New 2019 or 2018 or 2008…

Summary:
Happy New Old Year 2019... oh, wait... As @lisaabramowicz1 notes: "The gap between 3-month T-bill and 10-year Treasury yields has collapsed in the past few weeks and is now at a new post-crisis low." Or, put differently, the short run is the long run and vice versa. Which means that market expectations for longer term funding costs are now on par with markets assessment of the present, and the long term risk premium has been drawn to near zero. It also means that investors no longer view longer term returns as being attractive - a bond markets way of saying that any monetary policy normalization will have to be checked against the markets over-reliance on debt and leverage.As a chart posted by @boes_ shows: the Fed has managed, so far, to completely flip upside down markets

Topics:
[email protected] (Constantin Gurdgiev) considers the following as important: , , , ,

This could be interesting, too:

Jeffrey P. Snider writes Denying The Curve? Show Your Work

Marc Chandler writes Animal Spirits Lick Wounds

Lance Roberts writes UNLOCKED RIA PRO: S&P 500 Plunges On Yield Curve Inversion

Jeffrey P. Snider writes Europe’s Further Confirmation(s)


Happy New Old Year 2019... oh, wait...

3/1/19: Happy New 2019 or 2018 or 2008...

As @lisaabramowicz1 notes: "The gap between 3-month T-bill and 10-year Treasury yields has collapsed in the past few weeks and is now at a new post-crisis low." Or, put differently, the short run is the long run and vice versa. Which means that market expectations for longer term funding costs are now on par with markets assessment of the present, and the long term risk premium has been drawn to near zero. It also means that investors no longer view longer term returns as being attractive - a bond markets way of saying that any monetary policy normalization will have to be checked against the markets over-reliance on debt and leverage.

As a chart posted by @boes_ shows: the Fed has managed, so far, to completely flip upside down markets perceptions of forward risk pricing:

3/1/19: Happy New 2019 or 2018 or 2008...

The white line above is the U.S. yield curve on the first day of Jay Powell's tenure at the Fed, against the blue line today.

Whether these expectations are macro-driven (concerns about future growth) or risk-driven (concerns about the Fed's capacity to normalize rates and money supply into the short- to medium-run based on liquidity/leverage/financial markets concerns) is an open question. It might be that the markets are now synchronized to price yeans the signs are pretty ugly for 2019 investment contribution to growth as well.

Leave a Reply

Your email address will not be published. Required fields are marked *