It seems pretty clear that with both the fiscal and monetary stimulus have not put a dent in the unemployment rate While the public political debate has been filled with disappointment that the fiscal stimulus has not provided a cure to the high employment rate the Fed's actions haven't accomplished much towards that goal either. With more fiscal stimulus off the table it is clear the fed is searching around for what remains in its toolbox. Short term rates are essentially at zero, so it seems a near certainty the fed will move to quantitative easing = purchasing bonds to take intermediare rates lower. At the same time there seems to be the beginning of a campaign to indicate that a bit of inflation will be tolerated in an environment where the greatest risk is contnued high employment.
A careful look at the bond market's recent movements give a clear indication of the consensus forecast:
fed intervention in the intermediate term of the yield curve will pull those rates lower (price higher)
long term inflation makes long term rates unattractive
hence the 30 year treasury spread over the 10 year treasury has moved to a record level of 1.4% , it was around 2.2 % a year ago ( a graph of the treasury yield curve is attached)
continued rally in TIPS (inflation protected bonds) in anticipation of higher inflation in the longer term
other charts below: TIP (tips etf), FIVZ (intermediate term treasury etf),edv 25+ yr treasury etf
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| EDV 25+ Yr Tresury etf |
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| FIVZ 5-7 Year Treasury ETF | | | | | | | | | | | | |
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| TIP Inflation Protected Bond ETF |
1 comment:
> hence the 30 year treasury spread over the 10 year treasury has moved to a record level of 1.4% , it was around 2.2 % a year ago ( a graph of the treasury yield curve is attached)
Do you mean a record low level of 1.4%? (And then: why? shouldn't the spread be increasing if intermediate rates are heading down and long-term treasuries look unattractive?) Where is the yield curve graph?
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