Stories from the bond market as the Yield Curve Steepens

Subtitle: Deflation to Inflation

This morning the 10/2yield curve is again steepening and that is the headliner and one of my two most important indicators (the 30 year yield Continuum being the other). But I thought I’d dust off a bunch of existing charts from my chart lists that tell their stories as indicated by the bond market to go along with said yield curve. But let’s begin with the headliner.

Is this just another bump as in 2016 (2nd chart) or is it a real steepener like 2007 (3rd chart)? After all that post-Op/Twist manipulated economic booming it is due, I can say that much.

yield curveyield curveyield curveyield curve

Everybody has the memo. Deflationary destruction it is! The yield curve (bottom) can steepen under either deflation or inflation. Right now it’s deflation hysteria…

…but what’s this? Hammer time?? The Continuum had been hinting at the coming of a dovish Fed on the Trade War damage alone, but now it’s a dove on steroids. Perfect, bring on the next inflation attempt.


Here’s the daily view of the 30 year yield.

The next inflationary kick save was in the bag already because inflation expectations had been tanking all along, hadn’t they? The Fed took action when the stock market finally cracked in response. When we first reviewed this chart TIP/TLT was just a divergence to SPX making new highs. Now? It’s in line. This pig was bloated on Bernanke’s inflationary operations that worked spectacularly well for stock certificate owners. Bravo to the “the Hero”.

The 10-2 curve was led back in 2018 by the 30-5. FYI, if nothing else.

This is scary, and it does not even include the Fed’s most recent plunge back into ZIRP.

Here’s SPX finally doing what it is supposed to do when the 2yr yield tanks. That expression of greed at the end of 2019 – AKA what I’d anticipated to be a terminal manic upside blow off – was stopped dead in its tracks by the global contagion (not the contagion of un-payable debt, the other one).

German 10yr yields are bouncing too.

UK as well.

And wow, check out Japan’s 10yr.

We’ll end with just another sad looking story chart. It’ll tell you its story, not me.

Here is the daily chart view of the above.

Bottom Line

You may see a lot of things in the pictures above. What I see is masses of thundering herds rushing to the deflationary side of the boat. Rushing to cash. Rushing to USD. That is what I see.

What I think is that this is a massive inflationary setup and those same thundering herds – being the herds that they are – will do their job of going over the cliff into the wrong position as they always do. Some day, when a new inflation is vigorous if not compelling, they will thunder on over to that side of the boat.

And so, the world turns. Today it’s DEFLATION SCARE!!! and players are in reaction mode. Tomorrow?

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