05/27/09 Baltimore, Maryland “We believe the action in the bond market is the key to understanding the move in commodity and stock prices,” adds Dan Denning. “What you see in the charts below is the widest spread between 10-year and 2-year notes since 2003.
“The yield curve is getting steeper. Investors are charging the U.S. more to loan to it long term while they seem to be happy to park cash in shorter-term maturities, even if the real yield is negligible.
“The current spread between 10-years and 2-years is 263 basis points (2.63%). It blew out to 274 basis points in 2003. That was about the same time that Alan Greenspan’s Fed slashed rates to 1% and kept them there to kick off the leveraged bull market in all asset classes across the globe. Global synchronized boom.
“The Fed doesn’t have that flexibility today, of course. U.S. short-term rates (the Fed funds rate) are already being held in a range between 0-0.25%. If the central bank wants to try to bring 10-year rates down, it’s going to have to buy more bonds directly. And if it does so by creating more money, we reckon it puts more bullish pressure under gold, oil and copper prices.”
Ian Mathias
Ian Mathias is the managing editor of Agora Financial’s Income Franchise, where he writes and researches about retirement, dividend and fixed income investing. Much of his work is featured in The Daily Reckoning and Lifetime Income Report – Agora Financial’s flagship income investing advisory.
Previously, Ian managed The 5 Min. Forecast, a fun, fast-paced daily look into the future of global markets and macroeconomics. He’s also worked in public relations, where media outlets like Forbes, AP, Yahoo! and MSN Money have syndicated his writing. If he’s not at work, you’ll probably find Ian on a bicycle, racing up and down the “mountains” of Baltimore County. Ian has a BA from Loyola University in Maryland.
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people people people….djia and tnx sold off today….tnx is up almost 6% – mortgage rates are going through the roof….the implosion has begun….stocks have peaked and will not “correct” – they will go into free fall….that imbecilic rise yesterday from an increase in consumer confidence was stupid money chasing a sneeze….