Over the past few weeks we have seen an extreme amount of volatility in the debt /bond market. The 2/10 spread inverting for the first time since 2007, (the financial crisis), and the 30 year falling below 2% for the first time in history. Just this Past Wednesday, we watched the Dow Jones Industrial Average plunge 800 points.
But last week, specifically on Friday, this all changed.
This past Wednesday as the stock market plunged, President Trump got on the phone with the CEO's of the major Wall St. Banks, and the following evening, a "rumor" was floated out that The Federal Reserve is going to inject "stimulus" into the economy/market. Subsequently on Friday, stocks rallied across the board.
Late Friday, after the market closed, it was announced (with no fanfare) that The President would not be placing tariffs on multiples of Chinese goods.
The combination of The President's phone calls with the CEO's of the Wall St. banks, the "rumor" floated out the following evening regarding more Fed. stimulus, and the new concessions made to China on trade, (second time in a week), has had a DRAMATIC effect on the bond market.
Keep in mind. The bond market reflects "fear" in the market. Cash makes its way into the debt market as a "safety trade." The flow of cash into the bond market forces yields lower.
Because of the series of "fear easing" events, which began with the President calling the same 6 banks which run the Fed., and ended with more concessions to China by the President, the "fear trade" is off.. hence an incredibly rapid return to a "normalizing" yield curve..
This is very stock market positive.
Below is a snapshot of a "normalizing" yield curve.
Thanks again as always, Gregory.
Always appreciate your illuminating insights sir, I notice most other countries are still going negative rates at an alarming rate, Do you see a limit? and won't their investors/traders collect the free money and pour it into US bonds? as its still widely considered the safest yield on capital out right now.
The stock market volume is a lot lower than the bonds, The bonds are seemingly the star of the show. I think this yield curve normalization wont last for long. Tho the yield curve inversion is a lagging indicator I am curious if you have any idea on what will be the straw that breaks the camels back?