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Inverted Yield Curve
By: Forums

dc CB 03:13 GMT July 21, 2006

Is Ben Bernanke the Fed’s Donald Rumsfeld?

I've said it before and I've gotta say it again.

The best Bernanke line from the Senate Q&A yesterday was his answer to what about the inverted yield curve....recession?

No, the reason long term interest rates are below short term rates is because of the....the Global Savings Glut"

Las Vegas Jon 04:56 GMT May 10, 2006
Montréal Taro 03:35 GMT May 10, 2006

Hi Taro. First let me just say that the #1 truth about the market is that anything can happen. I make trading decisions accordingly. It is my underlying principle to leave my opinion at the door each day when I sit down to trade and let the market dictate what I need to do- not the other way around. It is impossible to be wrong over time as a trader by following this guiding principle.

Now, enough of the truth. Just for fun here’s my opinion about rates-

When looking at the fed fund futures the implied rate for this month is 4.96 so a .25 increase is almost entirely priced in the markets and almost fully expected. June futures imply 5.03% July = 5.09% Aug = 5.16% Sept = 5.20% Oct = 5.22% Nov = 5.23% and Dec = 5.22%.

Logic and reason would suggest that the FOMC is caught up with the market at 5%. After that it will probably be data driven as Uncle Ben has been trumpeting and I would not be surprised to see a pause for a while. The actions of the FOMC take approx 12-18 mo's to be felt in the economy and inverted yield curves (saw this not too long ago) usually 6 mo's. All of this along with cautioned future earnings expectations and guidance out of publicly traded co's starting to build suggest a slowdown in the blazing hot US economy on the horizon.

From an interest rate carry perspective, a slowdown or halt in rates is not attractive for USD when compared to other currencies. Having said all of this I believe that the market has relatively accounted for the previously mentioned developments. The first real sense of a slowdown in rates along with higher commodity prices sent the USD into a quick adjustment from that seemingly endless range we saw for so many days. Gold and oil were already relatively high during that phase and have obviously moved higher but to me it was when the rate slowdown horizon became more visible that the USD went into this weakening environment. So IMVHO the market is being mostly driven on rates. Once the rumor becomes fact about the slowdown and/or pause...well you know what they say about buy the rumor sell the fact.

Mtl JP 18:57 GMT August 31, 2005
fwiw, Bernanke on Bloomberg TV earlier today:

* only substantial rise above $70 would be a headwind to the economy
* inverted yield curve has no bearing as indicator for recession


London. 00:57 GMT June 15, 2005
Poole hints Fed can be more aggressive on rates if needed, saying fact inflation fears are low gives Fed room to act; adds inverted yield curve isn't recession signal. censored says comments indicate flattish or inverted curve "will not dissuade the Fed from continuing to raise interest rates. We look for the Fed to shift its key rate to 4 per cent by the end of this year." Notes Poole also suggested he didn't view low bond yields as conundrum.


Livingston nh 14:15 GMT June 8, 2005
Some important tests - oil at 56 is needed to confirm the uptrend in prices into OPEC meeting - it hasn't been able to hold above 55 and reversed sharply last times thru // big cause and effect test for Fed - does an inverted yield curve predict economic slowdown or cause it (self fulfilling)?? - May CPI (6/15) out next week and that afternoon the Beige Book should set the table for the Fed

NYC 18:56 GMT March 23, 2005
nh, inverted yield curve indicates recession risk?

Livingston nh 21:08 GMT March 10, 2005
Oleg - both GBP and AUD suffer from a flat to inverted yield curve and as consumer based economies; they will pay the price for that - Cable has been able to move its 21 da sma higher above its 55 da ema more than EUR or CHF - Asians with USD surplus will buy gilts but the economy in Britain and Asutralia has peaked

Livingston nh 15:33 GMT January 25, 2005
London HB 15:18 GMT January 25, 2005
Fed is taking the risk out of the market but it will come back - G'span may trigger an inverted yield curve // most folks see 3% Fed Funds by June, 3.5% by year end -- 10 yr is under 4.15% - not much of a spread - what if Fed Funds 4% by end of June// G'span has always stopped hiking Funds 3% above inflation (pick an inflation %)



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