Thursday, December 20, 2018

2s-5s inversion, only 14 basis points separate the 2 and 10

We are inching closer to a 2-10 yield curve inversion. For locking your money up for an extra 8 years, you get rewarded with 14 basis points or an extra $1.40 of interest per year for every $1,000 in 10-year bonds you buy. Not a handsome payoff.

It's also interesting that 5-year I Series savings bonds pay more than the 10-year at 2.83% (with some inflation protection!).

Quantitative Tightening is starting to bite. I am not sure if the delays have been the same with QE vs QT, but it seems QT is having a faster impact as money that used to be rolled as it matured from the Fed balance sheet evaporates into the void. And the process is really just getting started. There is still over $3 trillion that was created during QE that must be burned to get the balance back to where it started in 2008. Somehow, I doubt the Fed will make it all the way back below $1 trillion before something big blows up.

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