Monthly Archives: December 2018

Dog Bites Curve

Yesterday, or probably Monday, I'm not much into days anymore; the Petri Dish of Hate, Sounds Right Economics and Outright Baloney that is Fin Twit erupted in all manner of hyperventilating as the 3 year Treasury yield wimped over the 5 year.

In the words of Obi Won, These are not the inversions you are looking for. There is little if any history to back up recession with the inversion of the belly. What these kinked structures do mean is the Treasury Dept. should issue more Cincos....rapido.

Yield curve inversions that show a strong track record of 6 -9 month lead time of slow downs are linked to the Funding Rate and most importantly - The calibration of Monetary Policy to the Neutral Rate at the time of inversion. As we have shown on multiple occasions, and will again here (for your dining and dancing pleasure) the present calibration of policy is slightly tilted toward accommodation. That is, If the market could set the funding rate, where would it be? And our answer is about 2.87% . Thus, the Fed, in my opinion, remains - BY INTENTION - trailing the concept of neutral as opposed to tightening into and through the rate. (next year -maybe, maybe not - kinda like MBS murder culpability !)

Always remember - a CB can be "too tight" at 1.5% (Are you listening Ben?) and/or "too loose" at 4% (Greenie? Can you here me?) With Year End coming and 41s passing, perhaps the meme machine that market analysis has devolved into can grow a little grey matter and show somw character.