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Tuesday, May 24, 2005

Yield Curve Inversion III

The current spread between 10 and 30 year is 33 basis points. If the Fed bumps another 25 basis points, the yield curve will probably flatline at the high end.

By pausing, the Fed will be playing double dare with the ill behaved 007 (bond) market, as it will run wild and foam at the mouth like a child who has ingested 50 Willy Wonka bottlecaps.

Therefore, a pause in and of itself, may precipitate a yield curve flatline. Oh poor Fed, dammed if you do, and dammed if you don't. It is quite the corner they have painted themselves into.

A potential pause is something we have previously discussed strictly as a means to facilitate a yield curve shift for the 30 year bond reintroduction announcement in August & the Chinese RMB 5% unpeg later this year.

We now have a working title for the aforementioned events, A.k.a. The Silence of The Oh-Oh! Seven Lambs.

I for one, believe there will be no pause. Alfred E. Greenspun will get the bond market to behave, one way or another, and there will be pain involved.

See Yield
Curve Inversion I and II for further details as to why (due to the Fed's & FCB's chicanery) we are not a good situation.

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