Tuesday, 2 June 2009

US 2-YR, 10-YR Yield gap hits record wide at 277 basis points


As reported by FT Alphaville citing Reuters as the source.

US 2-YR, 10-YR YIELD GAP HITS RECORD WIDE AT 277 BPS IN THE WAKE OF STRONGER-THAN-EXPECTED HOME DATA

Amidst the general confusion about direction in various asset classes there is one thing that I am confident about which is that, unless we get another major leg down to the rolling financial crisis (which is becoming more unpleasant to contemplate each day that the disconnect from mounting debt problems persists), the bull market in US Treasuries which carried from the October 1987 crash until December of 2008 is over.

Yields on the five year note seen in the chart above saw the largest relative jump yesterday and I would expect that as long as traders in equities and commodities continue to push the reflation agenda the market’s focus will move increasingly towards the shorter term securities, in particular 2 year notes.

Perversely the rates on short term bills are declining significantly at present - which I don’t believe is a positive for those claiming boldly that risk aversion is behind us.

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