Category: ECB

Trouble With The (Yield) Curve! 10Y-2Y Slope Approaching Inversion As Fed Plans Rate Hikes And Bitcoin Falls

The US Treasury yield curve (10Y-2Y) is rapidly approaching inversion at 20.5 bps (where the 10-year yield is lower than the 2-year yield). But the 10Y-3M curve is generally steepening at 173.33 bps.

Of course, the driving force behind the flattening of the 10Y-2Y curve is the rapidly rising 2-year Treasury yield (orange line). The last time the 10Y-2Y curve inverted was in 2019, prior to the COVID outbreak in early 2020.

The Wu Xia United States Federal Reserve Funds Shadow Rate has finally climbed back into positive territory.

At last look, The Federal Reserve is forecast to raise their target rate 7 times over the coming year. And with the increasing forecast of rate hikes, we are seeing the cryptocurrency Bitcoin fall from near $70,000 to $41,817.

President Biden announced that he will be issuing an executive order to combat rising energy prices (the rising energy prices that he caused in the first place with … executive orders). Let’s see what happens next.

Hello t-r-o-u-b-l-e.

Can You Spot The Fed’s Policy Errors? The Fed And Fannie/Freddie’s Demise After 3 Fed Policy Errors (We Are Now In PE5!)

The Federal Reserve is not mentioned in the movies “The Big Short” or “Margin Call”, but The Fed’s policy errors played a big role in the demise of Fannie Mae’s and Freddie Mac’s equity prices.

Here is a chart of The Fed’s many policies errors. Let’s start with The Fed lowering rates too fast around the 2001 recession. They pushed their target rate from 6.5% in December 2000 down to 1.75% after one year and then down to 1% (PE1). As home price growth accelerated, The Fed engaged in their second policy error — raising rates too fast resulting in a dramatic cooling of home price growth. Then came Policy Error 3: the dropping of The Fed Funds Target rate from 5.25% in September 2007 to an eventual 0.25% in December 2008.

With the election of President Obama, The Fed engaged in Policy Error 4: keeping The Fed Funds Target rate too low for too long, combined with their massive asset purchase programs (QE).

Finally, The Fed (under Yellen) finally raised The Fed’s target rate ONCE under Obama, but started raising rates once Trump was elected. The Fed also slowed their QE under Trump which as called “Fed policy NORMALIZATION.” Then COVID struck and The Fed engaged in Policy Error 5: keeping rates too low for too long … again while massively expanding their balance sheet.

Fannie Mae and Freddie Mac, the DC mortgage giants were done in by The Fed’s whipsaw Policy Error machine.

Now we are embarking on PE 5: Powell and The Fed Gang not raising rates but signalling that they will. Like the play “Waiting for Godot.”

Powell And The Fed Gang Stick With Negative REAL Treasury And Mortgage Rates (US Housing Starts SOAR 6.8% In February)

Well, Powell and The Fed Gang failed to tackle inflation with its 25 basis point increase in their target rate. The result? Inflation is still roaring and REAL Treasury yields remain NEGATIVE (nominal Treasury yields – inflation).

In fact, the US Treasury 10-year yield hovering around 0% when Biden first became President, then the inflation kraken was unleashed leading to progressively declining 10-year Treasury yields. As on late night, the REAL 10-year Treasury yield is -5.71%.

REAL mortgage rates (Bankrate 30Y rate – inflation) were positive at the beginning of the Biden Administration, but have sunk to -3.40%.

With negative REAL mortgage rates (and continued Fed Stimulypto), we saw February housing starts rise 6.8% in February.

The Fed is apparently jittery about Russia invading Ukraine (mentioned in The Fed minutes) as well as the possibility of China invading Taiwan (NOT mentioned in The Fed minutes).

But if we look at the Fed DOTS plot, we see a rise in The Fed Funds Target rate in 2022 (7 rate hikes), more rate hikes in 2023 and 2024 and then a slowing in the longer term (as if voting members have a clue about the long-run economy).

The WIRP (Fed Funds Futures) is signalling 7 MORE rate increases over the coming year.

Biden is relying on Powell And The Fed Gang to provide ample liquidity in the markets, particularly before the midterm elections in November (hint: Biden doesn’t want Powell to rock the boat).

Fear The Talking Fed! Fed Raises Target Rate To 50 BPS, Still 11.50% Below The Taylor Rule (Dow Drops, 10Y Treasury Yield SPIKES)

So, The Federal Reserve raised their target rate by … as expected … 25 basis points to 50 basis points.

The Taylor Rule suggests that the target rate should be 11.96%. So, Powell and The Gang are getting closer! /sarc

The short-term reaction to the measly rate increase? The Dow declined (but still in positive territory for the day) and the benchmark 10-year Treasury yield spiked to 2.23%.

On Powell’s surrender to inflation, the US Treasury 10Y-2Y curve continued to flatten.

You can see The Fed’s sloth-like response to blood-curdling inflation in the lower right-hand part of the chart.

Here is what The Fed had to say. Kind of “We can’t fight inflation because Putin is invading Ukraine.”

Fed Week! 10Y Treasury Yield UP 11.1 BPS, Mortgage Rates UP To 4.33%, Oil Down 7.5% (Russian, Ukraine Sovereign Curves Collapsing)

Yes, it is the much anticipated Fed Week! The Fed Open Market Committee (FOMC) will announce it decision (probably the first rate hike under Biden of 25 basis points).

This morning, the 10-year Treasury yield rose by 11.1 basis points and the Bankrate 30Y mortgage rate rose to 4.33%.

Actually, sovereign yields are up around 10 basis points in the US, Canada, and across the pond.

Fed Funds Futures are pointing to 7 rate hikes over the next year with 1.114 rate hikes on Wednesday. That means The FOMC may raise rates MORE than the 25 basis points expected my many (including me).

The US Treasury actives curve remains steeply upward sloping while both the Russian and Ukraine sovereign curves are steeply inverted and crashing.

Russia has pushed the weighted average maturity of its dollar sovereign bonds out to almost 12 years.

The most hilarious headline of the day is a Bloomberg opinion piece: “Fighting Inflation May Require the Fed to Be Brutal: Clive Crook” How about the Biden Administration relaxing oil drilling and pipeline restraints? Otherwise, brutal translates into causing a recession. Great suggestion, Clive! … NOT!

Who Benefits The Most From Federal Reserve Stimulypto? (Hint: NOT The Bottom 50% Of Population)

Following the financial crisis of 2008/2009, The Federal Reserve began their dramatic purchase of assets such as Treasuries and Agency mortgage-backed securities (AgencyMBS). And then Covid struck and The Fed went berserk with asset purchases.

So, who benefited the most? The top 1% or the bottom 50%?

Answer? The top 1%. The share of total net worth spiked dramatically after the Fed infusion.

Even the bottom 50% benefited with The Fed’s Covid stimylpto, but no where near how the top 1% benefited.

World Economic Forum’s elitist Klaus Schwab approves of this message!

On an unrelated note, the US Treasury yield curve is strongly UPWARD sloping, while Russia’s and Ukraine’s yield curves are inverted and collapsing.

Consumer Confidence Plunges As Inflation Worsens (UMich Conditions For Buying Homes Declines To 70)

As inflation worsens, the University of Michigan survey of consumers fell again as US inflation worsens.

On the housing front, buying conditions for houses fell to 70 as a result of soaring home prices.

MY confidence in Biden and Congress has certainly declined.

Friday Update: US Mortgage Rate Rises To 4.32% As 10-year Treasury Yield Breeches 2% (6+ Rate Increases Baked Into Fed Futures Data)

Good morning!

US 30-year mortgage rates rose to 4.32% (Bankrate) as the 10-year Treasury yield broke through the 2% barrier. This is happening as Fed Funds Futures are pointing toward 6+ rate increases over the coming year.

Actually, Fed Funds Futures are pricing in 7 rate increases over the coming year.

At least all is quiet on the commodities front.

So, it appears that Fed Chair Jay Powell will follow-through with numerous rate hikes over the coming year.

I guess Powell is tired of being a low-rate chump instead of a high-rate champ?

US Inflation Soars To 7.9% YoY In February As Gasoline Prices Climb 38% YoY, Food Rises 7.9% YoY)

As expected, US inflation soared to 7.9% YoY in February as gasoline prices continue climbing.

US rent inflation (owner’s equivalent rent of residence YoY) surged to 4.30%. However, Zillow’s rent index last month was 15.93% YoY.

But if we look at US Monthly Rent YoY, we see that rents are climbing at a 17.6% rate.

Energy costs soared in February YoY. Gasoline was up 38%. Fuel Oil was up 43.6%. Food was up 7.9%.

Volatility (AVAT) rages in the energy sector.

There are still 7 rate hikes in the cards from The Federal Reserve.

Gold has been climbing as Russia invades Ukraine. Cryptos Bitcoin and Ethereum are steady, even as the Biden Administration issues an executive order to “study” cryptocurrencies.