Yield Curve Status

The flattening yield curve has attended the boom in the US economy and the bull in the US stock market. A change in the flattening status will change the dynamics to the degree that they either completely reverse to bearish (if the curve steepens due to declining short-term yields) or shift, with new investment strategies having to be geared toward the inflation trades.

Here again, because I love looking at these pictures, is the long-term flattening state of the YC. It clearly shows that the real boom phase began in 2013 (not coincidentally as the Semi Equipment cycle was percolating beneath the surface as our leading indicator).

yield curve, monthly

The blue box on the upper left of the daily chart shows the condition that built in late January – as casino patrons were happily bulling toward a mini blow off –  and brought on a mini crash in US stocks in early February. At the lower right is today’s situation at yesterday’s close.

yield curve

This morning is shaping up as a steepener as well. Here are the various yields in real time, courtesy of Investing.com. Yields are on the rise again and the 10 is rising more than the 2.

So again we ask the question; is the Good Ship Lollypop in for some troubled waters? If the curve goes on to steepen it need not be Armageddon for a while, as rising nominal yields imply cyclical inflation. But here we have two mitigating situations…

  1. Eventually, rising 10 & 30 year bond yields would eat away at the flesh of an economy built on the declining yield Continuum ™, or…
  2. As we’ve already noted, the whole yields mini-hysteria could reverse in-month (or maybe even in-quarter) into a giant head fake to send the cyclical herds over a cliff.

The market is fun again. Perversely enough, that is the case for me when the going gets rough.


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