Monday, November 28, 2005


Two And Five-Year Note Yield Curve Inverts

Reuters is reporting that the yield curve is closer to inverting. "U.S. interest rate swap spreads were little changed on Monday in quiet action although the swaps curve flattened, led by a flatter Treasuries curve. The two-year swap yield eased slightly to 4.73 percent, down 1 basis point from Friday, while the ten-year swap yield fell 2 basis points to 4.95 percent."

"U.S. Treasury yields mostly moved in the same direction, with the two-year Treasury yield little changed from Friday's close at 4.33 percent, and the 10-year yield losing 2 basis points to 4.41 percent."

Bid-Asked Change Yield
1-Mo T-Bill 3.870-.865 up .025 3.933%
3-Mos T-Bill 3.835-.825 dn .030 3.924%
6-Mos T-Bill 4.130-.120 up .000 4.274%
2-Year Note 99.27+-.276 dn .002 4.324%
5-Year Note 100.25+-.256 up .016 4.318%
10-Year Note 100.24+-.25 up .07 4.402%
30-Year Bond 111.05 -.06 up .28+ 4.619%

Looking at these numbers, one can see the two and five year notes have already inverted.

The dollar traders don't like what they see. "Worries that the housing boom could finally be petering out in the US, drove the dollar down against all the majors in Monday’s New York session. In response to the news panic seized the dollar-bull crowd leading the benchmark currency to loose at least 200-pips against the four major currencies at the peak of the anti-dollar rally."

Since about last April the yield curve has made a steady march towards inversion.

At current pace we should invert on the 2 to 10 in january. This is also when Alan G. steps down and Ben B. steps in. So much of the market is pure confidence right now, what added affect might this have?

Gold might run next spring as the M3 goes into hiding, while Home inventories for sale really take off, it will be an allureing alternative asset class, and become a bubble of its own.

Fall 2006 might be a interesting but tough time to live through.

Just watching the heard is amazing.
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