In 2002, the Yield Curve was extremely steep, with short
term rates at half century lows. This was extremely stimulative to economic
growth. Money was cheap, the carry trade was in full swing, and the Real Estate
market was just beginning to accelerate.

>

Yield Curve, 2002 versus 2006

Yield_curve_200206

Sources: StockCharts

 >

In December, the yield curve was inverted, and today, it is
flat. The Fed finally got its wish, with the long bond responding to increased
Fed Fund rates. We wouldn’t be surprised if the curve ends up steepening as
traders sell the longer dated bonds.

 >

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Quote of the Day: 

“To know values is to know the meaning of the markets.”
-Charles Dow

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Note:  This was part of a larger research piece that was emailed to institutional clients on April 11, 2006 at ~10:00am

 

Category: Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation

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