Yield Curve Steepening Continues

The 10yr/2yr Yield Curve continues to steepen

This will probably amp up the prospects of some kind of Yield Curve control (YCC) by our trusty centralized monetary politburo.

yield curve

Here is a chart I did last year describing why the steepener was considered inflationary.

yield curve

The most epic example of YCC was when the Fed announced the coming of Operation Twist in 2011 amid an inflationary episode that was threatening to get out of control. This one is obviously not yet making such a threat, but long-term Treasury yields have got many market players fairly wigged out.

I am going to withhold the primary indicator we use in NFTRH from this public post, but suffice it to say, things are getting nearly as extreme by some measures as they were in the inflationary last gasp into 2008 and the inflationary blow off in spring of 2011, when the Fed took macro-manipulative action via Twist. That stroke of genius painted the global macro with deflation and the good ole’ US of A with a blessed Goldilocks boom that ended right around when the curve inverted in August of 2019.

The steepening curve is now nearly as intense as it was during the final inflationary phase prior to 2008’s mass market liquidations. It is important to realize that there are multiple options in play and I am not predicting a deflationary episode.

I am, however, predicting change upcoming and the nature of that change will direct investment strategies. Do not be an automatic or linear thinker in a macro situation like this. Balls are juggling, tops are spinning on tables, powerful manipulators are planning their moves, machines are inducing volatility and all the while the media is serving up a lot of noise. Best of all, a crazy indicator* like the Yield Curve is liable to induce volatility one way or the other. It’s fun, eh?

yield curve

* Crazy because it is made up of the relationship between two yields and can steepen under both inflationary and deflationary pressures. 

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