Visualizing The "Tectonic Shift" In The Markets' Narrative

"...we're at a phase in this UST / developed sovereign bond trade where previously acceptable conditioning (‘buy dips’; ‘get long-er duration because it just keeps working’; ‘never-ending bond inflows will always pause selloffs’ etc) are all being reset in real-time, and this behavioral shift is painful."

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

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

This Is "Worrisome": The Probability Of A US Recession Surges To 60%, Deutsche Calculates

"This relentless flattening of the curve is worrisome. Given the historical tendency of a very flat or inverted yield curve to precede a US recession, the odds of the next economic downturn are rising. In our probit model, the probability of a recession within the next 12 months has jumped to 60 percent, the highest it’s been since August 2008."

The Message From The Collapsing Yield Curve

The FOMC is tightening monetary policy because Fed officials believe that the US economy is showing more signs of sustainable growth with inflation rising back near their 2% target. Yet the yield curve is warning that the Fed’s moves could slow the US economy and halt the desired upturn in the inflation rate. Most worrying for the Fed's narrative is the fact that the yield curve spread on a weekly basis has been highly correlated with the y/y growth rates in both the forward revenues and forward earnings of the S&P 500. The recent narrowing of the spread isn’t a good omen for either of them.

Copper Slides To Three Month Low Despite Flat Futures, Oil; Dollar Rise Continues

After two violently volatile days in which the market soared (Monday) then promptly retraced all gains (Tuesday), the overnight session has been relatively calm with futures and oil both unchanged even as the BBG dollar index rose to the highest level since April 4. This took place despite a substantial amount of macro data from both Japan, where the GDP came well above the expected 0.3%, instead printing 1.7% annualized, which pushed stocks lower as it meant the probability of more BOJ interventions or a delay of the sales tax hike both dropped. Meanwhile, in China we got proof of the ongoing housing bubble when new property prices were reproted to have soared 12.4% Y/Y in April, which in turn pushed the local stock market to two month lows amid concerns the rampant housing bubble sector could divert funds from stocks. Yes, China is trading on the "risk" one bubble will burst another bubble.

'Transitory' Excuses Destroyed As Mainstream Wakes Up To Crashing Yield Curve

The US Treasury yield curve is flattening again, with parts finally in 2016 surpassing the bearishness exhibited to start 2015. The mainstream is just now starting to notice likely because unlike last year there are no longer credible excuses to simply wish it away. “Transitory” is not a word you find much anymore, replaced instead by reluctant and forced acknowledgement that there is real economic peril here. Bearishness in the yield curve is not something new, however, only the notice of it.