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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Free Access###POV. WHY IS THE TREASURY CURVE SO........>
US TSYS: ###POV. WHY IS THE TREASURY CURVE SO FLAT?
- The USD Swap 2-10Y is 39.3bp but it costs money to hold flatteners: the 1Y
forward 1Y-9Y slope is 29.3bp. Thus, carry/roll for 2-10Y is 10bp per year. Why
incur this cost?
- You might think that a recession is coming and this is what the yield curve
flatness denotes. Wrong. This flatness is related to a collapse in the term risk
premium and term premium is theoretically unrelated to the economic cycle. In
2017, the NY Fed calculated ACM 10Y term premium has shed 80+bp.
- We in a secular stagnation world and low growth/return on investment leaves
the US terminal rate extremely low. Possible. But, the lack of aggregate demand
that sits behind the secular stagnation view will be tested in 2018 now the
world economy is facing a synchronous growth.
- The Fed will prioritise rate hikes over balance sheet run down if there is a
growth/inflation upside surprise. Unlikely. If credit spreads/long yields don't
rise they could pump the front end but would the Fed want an inverted curve? No.
- The curve is flat and 2018 brings new balance sheets/strategies.
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.