U.S. Treasury Bond Yield Curve: Flatter and Flatter Still!

What I find most interesting is what the markets do in response to, or ahead of, any Fed action. The Treasury bond market is the most liquid and transparent market on the planet. That’s why it’s subject to so much volatility.

And what volatility we’ve had! As investors try to get ahead of the potential rate hike next month, it’s been crazy. Especially last week, as yields were moving down into the week, then up Monday, down again Tuesday, then closed higher Wednesday. It’s almost been silly.

The two big questions are still in the air: When will the Fed raise rates, and by how much?

They still aim to before the end of the year. They cite improving employment and a steadily growing economy. But wage growth is close to non-existent, as is inflation. Home and auto sales might have improved in this low-rate environment, but economist data is scattered.

It’s a mixed bag!

Rodney recently discussed how the Fed might have trouble raising rates at this point as it no longer has its traditional means of doing so. Another problem is, the yield curve is already starting to flatten:

Flattening Yield Curve US Treasury Bonds

This would only get worse if the Fed raised rates. Notice how long-term rates have moved lower while short-term ones have edged higher. It’s a classic example of the market pricing in the possible Fed hike, but not an improving economy. Push it further, and we’re edging closer to recession than the hallmarks of economic advancement.

I agree the economy looks better than six years ago. That’s the Fed’s whole argument for raising rates. But all this transparency and insistence about normalizing rates has backed the Fed into a corner. Damned if they do, damned if they don’t.

If nothing else, all the volatility keeps things exciting. That’s why the Treasury bond market has been a major focus, and interest, of mine since I started in this business trading commodity futures in Minneapolis some 25 years ago!

Today, the markets are even more liquid, and you don’t have to trade futures to profit from moves in interest rates. Take that and all the noise in the bond market today, and there are sure to be major profit opportunities for subscribers of Dent Digest Trader in the months ahead. Join now and I’ll show you how to bank off these movements.

Lance Gaitan

Lance Gaitan
Editor, Dent Digest Trader

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Categories: Interest Rates

About Author

Lance Gaitan graduated from Franklin University in Columbus, OH with a degree in Finance. After graduating and working as an auditor for an insurance administrator as a number of years, he attained his securities license. He then went to work as a broker for a small firm and during the mid-1990’s Lance managed the futures trading desk for Piper Jaffray, a large regional brokerage firm based in Minneapolis. After migrating to Florida in early 2000, Lance founded a futures trading firm, GSV Futures, specializing in retail commodity trading strategies. Lance sold that business in 2006 and joined Harry Dent, Jr. and Rodney Johnson at Dent Research shortly thereafter.