Treasury Curve Compression Implies January Jubilance In Stocks Overdone

Tyler Durden's picture

Despite the modest weakness in the long-bond, that so many herald as the next coming of the Great Rotation meme, it would appear that the longer-end of the Treasury bond term-structure actually flattened quite notably since the start of the year. Whether this bear-flattening reflects less extreme long-term concern of hyperinflation (small odds but high impact at long-end), mid-curve-based hedging (January was a massive IG issuance month and MBS convexity concerns are growing), or lower long-term growth/inflation expectations is unclear. But given the Fed's foot on the throat of the short-to-medium-term Treasury term-structure, the longer-end remains a marginally 'free' market and based on the chart below implies equities are well ahead of themselves as we draw a line under January 2013.

The alternate view is of course that 30Y bond yields should decompress another 10-15bps relative to 10Y - which would take us back to the same steepness prior to the debt-ceiling debacle in August 2011.

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Everybodys All American's picture

January! What about the last three fucking years. Pardon me you can't handle the truth...

tallen's picture

Britain entering triple dip, FTSE 100 close to 07 highs. Terrible econ news for US, S+P at 1500. Every idiot in the world proclaiming stocks are fantastic on CNBC. This isn't going to end well.

kaa1016's picture

Do you know how many times I scream at those assholes on CNBC only to have to remind myself that they can't hear me. It really seems like there is a full blown propaganda war going on right now to make people buy stocks. That usually happens at market tops. It reminds me in 2007 hearing someone say that home prices can never go down because they never have. What a rude awakening that asshole got.

bobthehorse's picture

No crash is coming.

This is Japanese-style endless recession.

We'll limp along like a gut-shot animal for the next two decades.

This sucks.

SheepDog-One's picture

Tom Ree say 'DOW 20,000'...must be mistake here. Just keep chanting 'Retail equity panic buying spree' Bernank, I'm sure it will come true!

DeadFred's picture

The curve is still stuck at that huge gap up at the beginning of the year. Maybe Tom know something about how treasuries can make the 'miracle jump' that seemed so easy for equities. Woe to the market if/when it hits the top of that gap. Of course DOW 20,000 says we'll never have to worry about that. LOL

EscapeKey's picture

Pump up the DOW, pump it up

While your feet are stompin'

And the DOW is pumpin'

Look at here the crowd is jumpin'


Pump it up a little more

Get the party going on the NYSE floor

See 'cos that's where the party's at

And you'll find out if you're too bad

oleander garch's picture

These 'markets' of which you speak, how would we know them if they were to exist?

buzzsaw99's picture

The fed can never allow rates to rise. They are only going lower so people feel safe reaching out on the curve for yield. It is the no brainer trade of the century. 30y bitchez.


edit: also aren't the banks selling the short stuff and buying longer duration for a bit of profit from the backs of taxpayers?

LongSoupLine's picture

What about the Fed fucking owned Treasury curve itself.


Fuck that shit.  All fucking charts do is confirm how completely fucking owned this horseshit is by the fucking Fed from A to Z.


Fuck you Bernanke for bankrupting several generations to come you fucking total fuckstick.

Bunga Bunga's picture

Looks like they are loosing control, central planning fails in 2013.

LawsofPhysics's picture

Please, don't get our hopes up.  It is now a "hotel california" market, as in there is no market.

NotApplicable's picture

You don't seem to realize the failure is just yet another central plan. Consider it the "failure mandate" for further global integration.

See, they've been operating under this type of a mandate from Day 1. Just like with finance, every bubble that pops only creates the vacuum for the next one, which has to be bigger to cover up the previous mess.

In other words, they never had control. All they have is massive influence. It's like having the world's biggest hammer, when what you need is a pen-knife. So what can you do, except to smash the things that desperately need to be cut?

Bunga Bunga's picture

Agree, the will simply bail out the failed bailout with a bigger bailout. And when that bigger bailout fails, they bail out with an even bigger bailout. And when ....

SmoothCoolSmoke's picture

Looks like thye just will not let the SP go below 1500.  We'll see,  but wow.

ReptilianSlaveMaster's picture

The selling this week reminds me of the 1929 crash, I don't think the markets will recover after all the damage  that has been created

rubearish10's picture

Watch out, some newbies may very well think this is serious.

razorthin's picture

Umm, I think I got that with the gap up and 70 degree incline.  Didn't need no stinkin curve compression.

Logiclee03's picture

Zero Brains....if you keep saying the samething over again>>>>maybe it will come true>>>jeez

Tombstone's picture

Everybody's talking this thing to the moon.  I surely don't see any sellers on the horizon.  All I want is some two way action.  Enough of this mindless "everything is great" buying by playing follow the leader.

WhiteNight123129's picture

The flattening of the curve is because the 10 Years, despite being manipulated are witenssing a rise in yield nonetheless.

If the 30 years bond were going up while the 10 Years flat, the argument would make sense, but here, given that the 30 years are more free market and the 10 years less free market, what you have is the holders outside of 10 years are no reassured about printing while ILBE inflation expectations rise.

The Fed was getting a pass as long as money markets in hte US looked unable to function and at teh same time inflation expectation were plunging.

Right now the Fed is printing more with no evidence of derangement in money market or plunging inflation expectation.

The market is now interpreting the Fed printing as inflationary as opposed to fighting deflation as a result the market which was ~under the boot~ of the Fed, i.e. the 10 Years is reacting more. Don t interpret the flatening as deflationary please.

As for Equity rally, it is the idiots in cash thinking we are in fixed quantity of money regime expecting deflation and missing the money printing rally fomr 666 to 1450 getting of cash and somewhat in equity.

The guys understanding flexible money system are moving out of stocks dumping on the idiot idle money sheeple and shorting Treasuries.

The stealth trade is still short the 30 years.