In late January, when Haruhiko Kuroda took Japan into NIRP, he made it official. He was full-everything. Full-Krugman. Full-Keynes. Full-post-crisis-central-banker-retard. Now, he's managed to ease and expand his way into a contractionary tightening.
The US Treasury yield curve has plunged further today (2s10s -5bps at 107bps) breaking to its flattest since January 2008. The curve has been flattening since The Fed began to taper QE3 and as financials begin to catch down to that ugly reality, one wonders just what The Fed can do about this...
Some people say that gold is dead. They point to deflationary pressures and a bear market that started back in September of 2011. The bulls have been wrong for years; however, that may be about to change…
"Before investors sell 10s, they need the Fed to pause... The curve flattens into March 2s10s with risk off market dynamics and an increasing probability of relent, followed by bear steepening after a Fed pause. Rates could then stabilize or decline, depending on whether recession is avoided or at least postponed."
Santelli Thanks Plunge Protection Team As Bond Bloodbath Sparks Buying Frenzy In Stocks & CommoditiesSubmitted by Tyler Durden on 12/29/2015 18:34 -0400
This was not supposed to happen. The spread between the 2Y Treasury yield (which is soaring 7bps today) and 10Y (higher by 3bps) has plunged back below 120bps. The current cliff-edge has been support for the curve four times in the last 8 years but with GC rates blowing out to 7 year highs, one wonders if the size of the moves means we break to new regime lows.
We have never, ever, seen the long- and short-end of the Treasury yield curve so anti-correlated.
the major story for us right now is that the broad concept incorporated in “Exter’s Pyramid” is in operation. This something we mentioned in Autumn last year and it’s occurring across currency and credit markets and, to some extent, in equities. To recap, John Exter (a former Fed official, ironically) thought of the post-Bretton Woods financial system as an inverted pyramid resting on its apex, emphasizing its inherent instability compared with a pyramid resting on its base. Within the pyramid are layers representing different asset classes, from the most risky at the top down to the least risky at the bottom. He foresaw a situation where capital would progressively flow from the top layers of the pyramid towards the bottom layers. “…creditors in the debt pyramid will move down the pyramid out of the most illiquid debtors at the top of the pyramid…Creditors will try to get out of those weak debtors & go down the debt pyramid, to the very bottom."
It would seem that the day after Tuesday is not Tuesday... and so stocks sold off. The Russell 2000 is now 3% off its Monday highs, comfortably red for the week, and back below its crucial 200day moving-average. The Nasdaq is also down with the 50DMA crossing death-like below the 100DMA. Of course, it is the "you can't trust the signals" bond market that is making the real headlines as 10Y yields slump to fresh 7-month lows breaking notable support. The USD leaked lower on the day (but USDJPY was stable under 102) as ECB talked back some of the recent EUR losses. Commodities all pushed higher with silver up over 3% onthe week, gold back over $1305, and WTI over $102. VIX pumped-and-dumped at the open but could not sustain weakness as 330RAMP saw VIX's slam unable to drag stocks notably higher.