Historical curve perspective

A lot of charts attached, mostly treasury curves and also 3m libor vs 5y.  At the bottom is the FF target rate and SPX.

According to people who have seen Grant’s, he has mentioned curve inversion a couple of times recently.

Here is the summary of charts:  Curves flattened throughout hiking cycle of June 2004 to June 2006.  Every meeting rates were jacked by 25 bps, from 1% to 5.25%.  Curves inverted in Dec-2005 to Feb-2006 as FF target was 4.25 to 4.5%.  The Fed kept on going, as did stocks.  When the Fed got to the END of its campaign stocks pulled back, but then soared 26% into mid-2007!!  Recall it was early in 2007 when the Bear Stearns mortgage funds failed, the clearest bell ringing in history….but stocks kept going up.  Things can remain irrational longer than some of us can remain solvent, as Keynes once said….

 

2Y to 5Y…inversion at the end of 2005.  Fed had hiked at 13 meetings.  Funds at 4.25%

 

5 to 10y.  Inverted in Feb 2006, 14 hikes to 4.5%

 

2y to 10y.  Invert in January/Feb 2006.  14 hikes to 4.5%

 

 

 

5/30 inverted in Feb 2006

 

3 month libor vs 5 year treasury.  By the end of the tightening the 5y yld had peaked

 

 

RED/GOLD ED PACK SPREAD.  NEVER WENT NEGATIVE. LOWEST WAS 11.5.  CURRENT 38. 

 

 

SP 500 had a pullback at the end of the hike cycle EVEN AS THE CURVE WAS INVERTED; rallied another 26% before top

 

 

 

 

 

 

Posted on November 20, 2017 at 11:14 am by alexmanzara · Permalink
In: Eurodollar Options

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