Here is the 10/2 as presented live here. The spread is pulling back very recently but maintains a modest uptrend (steepening) for 2019.
Here is the 5 year view showing a break of the hard flattening trend since 2016.
On the very long-term view we can see that a bottom and turn to steepening has not always meant Armageddon. It did not mean that in the early 1980s or the early 90s. But in 2001 and 2008 it sure did mean something as in the latter case especially, the very system was ending. I don’t know how to put it any more bluntly than that. So what gives?
I believe that from 2000 on, the phase I used to call (and probably should continue to call) the Age of Inflation onDemand was cooked up by Alan Greenspan, who had come to a fairly desperate policy point as a 2 decade old bull market began to unwind and a leveraged economy hung in the balance. Ole’ Greenie took us right off the balance sheet and into Wonderland, or at least aided the financial markets in doing so as they concocted all manner of bubbles out of his permissive policies. The credit bubble of the time was something to behold.
Then in 2008 Ben ‘big brain’ Bernanke took things exponentially further with a simply massive inflationary fire hose filled with ZIRP, TARP, QE1, QE2, QE3 and the blight of all blights that took us beyond our ability to follow the macro breadcrumbs back to a state of normalcy, Operation Twist, which was the gift that gave the macro an appearance of ‘no inflation’ * and keeps on giving to this day in the form of a yield curve/spread that has been chronic down since that stroke of purely evil genius in macro manipulation was perpetrated upon the financial markets.
[no Gary, tell us how you really feel…]
How I feel is that since 2000 the desperation is ratcheted up exponentially from the times of Paul Volcker and his traditional Fed playbook. Greenspan aggrandized himself under the image of “the Maestro” (the fucker attended Juilliard, of all things) when really all he did was drink out of and eventually pollute the wellspring of relatively sound finance that Volcker had left him.
I am not smart enough or perhaps lunatic enough to be able to form a narrative that would explain where or why the breadcrumbs were lost or why the Continuum (below) has remained under control so steadfastly since Volcker handed off to Greenspan. I only know that it has, and that is enough. Something happened (or changed) in the 1980s and that something affected the Continuum below and the Yield Spread above.
What’s more, since that something is still in force (ref. the lovely robo trend below and why it was such a big deal that rates tried to break out in H2 2018). I am inclined to give more weight to the last two yield spread disruptions than the previous two, per the chart above. This is no comment on whether or not the next steepener is going to be inflationary or deflationary (my guess is the former), but it is a comment that we can expect some big changes from the damn Goldilocks thing that has gone on for too long now in the US.
* The reason Op/Twist forced the yield curve into a “no inflation” signal is that by definition, it’s strategy of selling short-term Treasury bonds and buying long-term Treasury bonds was a flattener. In the Fed’s own word… a way to “sanitize” inflation (mopping up the Fed’s own previously created inflation problem).
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