Here's an interesting update to my earlier post on Wolfram|Alpha about two weeks ago. Since that time, long term treasury yields have increased considerably, so I thought I would rerun my query to display the yield curve and compare results.
First is the yield curve from today (June 11, about noon Pacific time):
Followed by the yield curve pulled from the earlier post on May 27:
Hard to see with the naked eye, but sure enough, we see a much steeper yield curve today with slightly lower yields at a year and under, while the yield on the 10-year is up from 3.17% to 3.71% (an increase of about 17%). I actually saw the 10-year yield today on CNBC at 3.96%, so I'm not sure how current even the Wolfram|Alpha data is. Bloomberg is showing 3.86% right now after trading hours as I type this.
The 30-year T-Bond yield has increased by about 10% according to the above charts (Bloomberg is showing the 30 year at 4.69 compared to Wolfram|Alpha's 4.59%, or an increase of 12.2%). Investors tend to panic when their stock portfolios drop 12-17% in just a couple of weeks, but we don't hear the same kind of high anxiety from bond investors now. I wonder why?
I retweeted an article last week that was titled "Fed Puzzled by Steepening Yield Curve". It's really not that puzzling. And it's not that the FED is easily puzzled, but part of their job is to feign indignation at the hints of inflation, when they are trying to push the deflation story in order to jawbone interest rates down. The fact is that investors are expecting greater inflation down the road, and a weaker dollar. Amidst the talk of Russia and China diversifying out of the dollar as their primary reserve currency (i.e., selling their treasury bonds), investors are looking for more yield to both offset inflation expectations and the fear of a glut of treasuries hitting the market sending prices down and yields up.
This is not good news for the housing market or the prospects of a recovery if the cost of borrowing is going up. If the recovery is going to continue, it's going to depend on an environment of low interest rates. Although the massive govt. spending and bailouts has increased the money supply to unheard of proportions, with the prospects of more and more of that to affect consumer prices over the coming years. These two forces (the need for both dollar creation and low interest rates) are definately at odds with each other, and will require investors to navigate difficult waters in the months and years ahead.
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