Apr

3

When looking back at the term structure of interest rates, certain periods stand out: 1998, 2001, 2006-7, 2018, and now 2022.

That history is displayed here, constituting the 2yr, 5yr, 10yr and 30yr rates shown as month-end closes. Note that the 3-month bill rate has been omitted, and that the 2-year is emboldened. All of the periods show an increase in rates prior to the congestion, and all subsequently resulted in economic difficulty. From basic economic education we have learned the causative connection and indeed current political “Policy” seems to be in agreement.

Kim Zussman asks:

Do you think the long term downward slope could affect the forecast ability of yield curves?

Zubin Al Genubi comments:

Its along the lines of "don't fight the Fed".

Bill Rafter responds:

IMO, the downward slope is a function of the Fed essentially trying to remove the US economy from the free market. So (1) yes to Kim for the observation that it will lessen the effect, and (2) yes to Zubin for the always true observation not to fight the Fed.

Had I take the picture back farther, say to the early 70s you would have seen much higher rates (i.e. 21% for the 3-month), so that downward trend is a long one.


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