brewer12345
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Mar 6, 2003
- Messages
- 18,085
There are lots of potential explanations for why the yield curve does what it does, so I'll tell you what I think I see, but there are several plausible explanations (i.e. not involving space aliens).
I think the short end of the curve is being driven by exectations that the Fed will hike rates at least once more and sit still for a while once they actually stop (before cutting again). So the 2 year treasury incorporates expectations that for most of the next two years short term rates (fed funds, LIBOR, etc.) will be something starting with a 5. So that pushes up the short end.
I think the long end of the curve incorporates expectations that we are likely to see short term rates dropping in something like 12 to 18 months. This would be accompanied by a recession or slowdown, at which time longer term bonds will be a good place to hide for a while. This pushes the long end of the curve down.
I don't buy the central bank argument. After all, there is nothing keeping those banks from buying shorter term bonds, corporates, MBS, US equities, US businesses, US real estate, etc.
I think the short end of the curve is being driven by exectations that the Fed will hike rates at least once more and sit still for a while once they actually stop (before cutting again). So the 2 year treasury incorporates expectations that for most of the next two years short term rates (fed funds, LIBOR, etc.) will be something starting with a 5. So that pushes up the short end.
I think the long end of the curve incorporates expectations that we are likely to see short term rates dropping in something like 12 to 18 months. This would be accompanied by a recession or slowdown, at which time longer term bonds will be a good place to hide for a while. This pushes the long end of the curve down.
I don't buy the central bank argument. After all, there is nothing keeping those banks from buying shorter term bonds, corporates, MBS, US equities, US businesses, US real estate, etc.
