US Yield Curve Steepens To 5-Month Highs As Rate-Hike Odds Soar

Tyler Durden's picture

Since the last FOMC meeting (9/21) the probability of rate hike by December 2016 has soared from under 50% to 76% today (ahead of tomorrow's Fed statement). At the same time, the US yield curve has steepened drastically (with 2s10s up over 20bps to 5-month highs).

Chart: Bloomberg

However, unlike the last 4 Fed meetings, the US yield curve is steepening into the statement...

Chart: Bloomberg

It seems something has changed this time. Whether it is technical pressure from Risk-Parity unwinds, or a growing concern of inflationary pressures building (as ISM/PMI pointed to this morning), it is clear bonds are starting to buy the Fed's jawboning... no matter economic data expectations remain weak at best.

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remain calm's picture

GET READY FOR MARKET CRASH. 3..2..1.........

THEN THE GLOBAL QE OF ALL TIME MF'ERS

Soul Glow's picture

David Rockefeller is sitting in a large gold vault miles under ground with his finger on the nuclear "market" button waiting for Trump to be announced potus.

KABOOM!

And what will Trump do?  FIrst Obama will do moar QE before Trump is in office, and how would Trump combat a market collapse?  Raise rates?

Good luck Donald.  Good fucking luck.

SomethingSomethingDarkSide's picture

This Hydrogen Levitated Zeppelin was doomed the instant it took flight.

It will be a disaster either way, hopefully creative destruction actually occurs without bail outs.

CheapBastard's picture

Stawks are going to crash as holders understand the depth of the USA corruption I suspect. That thingy called, "Full Faith & Credit" was warshed down the drain by the Clinton/Bush Crime Families.

Gold will rise due based on 1) fear; 2) panic; 3) failure of more currencies; and 4) more fear and panic.

remain calm's picture

HE IS GOING TO SHIT ON THE CHINESE, JAPANESE, SAUDDI'S AND DEFAULT MFER. ITS CALLED START OVER, RESET, FORREST FIRE.

MFL5591's picture

Yes, rates going up to crash the economy for Mr. Trump.  The moneychangers will do their best to help destroy the country as they did every other country they were allowed in.

Turin Turambar's picture

No way in Hades the Fed raises rates.  But, but, but.... oh so close they will say...  any day now.... LOL

CJgipper's picture

They will if Trump wins.  Yellen is an Obama/Hillary sychophant.

Delving Eye's picture

If Trump wins, he'll fire Yellen, put Hillump and Lynch in jail, and tell the Fed to drop the interest rate to Zero. He loves cheap money.

JRobby's picture

0.25%

Dec. Lower it by 0.25%

Stupid game, game the system

Hohum's picture

Steepening curve means no recession, right?

CJgipper's picture

rate hike odds up = odds of Trump winning up

SallySnyd's picture

  Here is an article that looks at how painful the bond market correction will be when interest rates rise to levels last seen five years ago:

 

http://viableopposition.blogspot.ca/2016/09/quantifying-bond-market-corr...

 

Bonds will suffer a correction that will create a massive problem for investors who were looking for a safe haven.

LawsofPhysics's picture

Yes, but smart bond fund managers will simply to what Goldman does. Short thier own portfolio...

 

It's all about the churn until the day all fiat dies...

Bam_Man's picture

Treasury Bond sell-off will be short-lived.

Higher Rates = Instant Recession and Stock Market Melt Down.

Then we go back to ZIRP (or to NIRP) and get Moar QE.

Just my 2 cents.

LawsofPhysics's picture

So long as there are multiple currencies pricing multiple sovereign debt instruments, it's all about the relative rates...

As many have pointed out, much of that government debt has a negative rate!

Fucking insane. Basically says that you should have absolutely no faith in that government or their currency!!!!

Soul Glow's picture

SIlver has done nothing but go up all day.  Good thing I do the opposite of Gartman so I bought silver coins with dollars yesterday.

That fuckwit Gartman let me tell you he thinks the average person knows how to trade in FX?  His advice is to trade gold with fx?  Not the dollar?  How the fuck is anyone going to do that?  Everyone that listened to him yesterday lost an opportunity to trade their worthless dollars for real wealth.

Fuck Gartman.

BanyakUang's picture

Gartman has a couple of funds -- GYEN and GEUR --   They short the currencies and use the cash to buy gold.  He means to buy one of these if you believe the USD is crap but JPY and EUR are worse.  I am long GYEN

Bam_Man's picture

"Cargo Cult" economics.

MANUFACTURE a steepening yield curve and it must mean that the "economy" is booming.

It is hard to decide if these people are more insane or incompetent.

 

delivered's picture

Forget the Fed rate hike as the market (or what's left of it) is finally beginning to wake up and realize that the current 10 year yields, for just about any soverign debt, is a complete joke and is not even close to the type of yields necessary to compensate for two key risks - credit (i.e., the ability for the debtor to repay the debt) and inflation (i.e., loss of purchasing power). There is no way a 2% yield even comes close to compensating investors for these risks, something the poor bond owners are just beginning to figure out.

As for the Fed, they have to raise rates or lose all remaining credibility. The fact of the matter is that generally speaking, the Fed would begin to raise rates to a.) defend a depreciating currency or b.) cool down an overheating economy (driving demand pull inflation). We have the exact opposite of this as the USD has appreciated significantly over the past 3 months as is very strong while the economy continues to sputter along, in an uneven fashion, without showing any signs of real growth. Further, the type of inflation being realized now is centered in "cost push" forces (e.g., housing and healthcare costs being crammed down the population's throat) rather than demand pull.

The Fed's rate decision is a sideshow and really doesn't matter as what's really happening is the market is beginning to wake up and smell the coffee and price debt accordingly. And herein lies the real danger as if the world's CBs lose control of the long-end of the debt markets, and rates rise quickly, the damage to every asset class, from equities to real estate, will be extreme.

So the Fed is damned if they do and damned if they don't but one thing is really starting to gain clarity. The golden age of CB monentary policy extremes including QE, ZIRP/NIRP, and endless jawboning is coming to an end. From Japan to China to Europe to the US, it was a hell of a show and one for the record books but like all good parties, it must come to an end. The key is you never want to be the last one to leave the party and have to stick around and help clean-up.

Or in other words, definitely better to pull the ripcord too early than too late.

LawsofPhysics's picture

"the damage to every asset class, from equities to real estate, will be extreme." --

I think that depends on what type of accounting rules you use.

Don't overthink this, allow me to simplify it for you. "When fraud  is the status quo, possession is the only law."

This applies to all physical assets as well as productive capacity, period.

As you hint at, there is no way to avoid global Weimar now.

I'd also argue that it really doesn't matter if the paper/digital claims outstanding are tens of trillions of several quadrillions...

the physical assets/collateral to satisfy all those claims simply does not exist.

Cluster_Frak's picture

Yup and the rising dollar will pressure periphery: USD denominated debt from 3rd tier economies and dollar pegs. If I were in one of those countries, I would be escaping to hard assets such as gold right about yesterday. hence, further increase in the trade weighted dollar may not necesserily pressrue gold as much, since 3rd tier market particpants should buy hard assets to escape devaluation of their fiat currencies.