NFTRH+; a big move in this key macro indicator

The trend remains down in the 10-2yr yield curve, but I’d say a 92% jump from inversion in the steepening direction is notable and demanding of our attention going forward. I took a look at this after seeing that my short-term Treasury bond fund (1-3yr), SHY was positive while long-term yields were up again with long-term bond fund TLT negative.

yield curve

yield curve

The important takeaway is that when the next steepening comes we should have caution not only on cyclical market areas, but also the economy. While a new steepener could be inflationary, that is not the preferred view. Not with literally everybody on the inflation side of the boat right now. It is so important to realize that curve steepeners happen under inflationary or deflationary pressure.


This Post Has 8 Comments

  1. Armen

    Spread is up, long end is up, banks down. Interesting

    1. Gary

      Agree. IMO banks have been impaired by rise in short-term yields even as L/T yields rose.

  2. Fred

    I had to go back and look it up: in ’74, with food (and oil) prices surging, the Fed raised rates to 13% – did not stop food prices, or wage inflation, which, like now, are supply driven. Not much left to hide, even SHY down 3.5% since Nov. – as my girlfriend says “cash is king”

  3. Bart

    The semi’s confirm that a liquidation event is not out of the question.

    1. Gary

      I agree.

  4. Mad Hatter

    In addition to the action in the semis, the unfathomable amount of debt / leverage in the system ensures there will be a liquidation of historic proportions. Just don’t know when.

    1. Bart

      It is not only semis that are weak, but healthcare is strong (for consecutive days now). That points to the end of a move up – not the beginning.

      1. Gary

        And let’s not forget what a rising XLV/SPY ratio often precedes.

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