US OIS Forward Swap Inverts For First Time Since June 2007 As 10Y-2Y Treasury Curve Flattens To 18.75 BPS (REAL Fed Funds Target Rate Remains NEGATIVE)

We have been watching out for the US Treasury yield curve to invert (e.g, 2-year Treasury yields greater than 10-year Treasury yields).


And the US Treasury 10Y-2Y slope has flattened to 18.75 BPS.


While the 10Y-2Y Treasury curve is flattening, the US Overnight Indexed Swap (OIS) is showing a decline at 3-5 years while the US Treasury actives curve is increasing over the 3-5 year tenor.


If we look at the forward curve for OIS Swaps (2Y1M-1Y1M), we see that the spread is now negative (or inverting) for the first time since June 2007, before The Great Recession began.


As Fed Chair Jerome Powell said recently, as long as the economy is hot, The Fed will keep on raising interest rates.

But is The Fed pushing too hard?  Probably not since the REAL rate at which banks lend to each other remains NEGATIVE. Then again, we have to watch mortgage applications as rates rise.




Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.