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Here's Why We Have A Seriously Misunderstood Yield Curve Inversion

Published Thu, 06 Dec 2018 08:52:47 -0500 on Seeking Alpha

Operation Twist - Redux 2 If we examine this year’s Treasury auctions compared to last year, we see from days gone by an interesting reincarnation of "Operation Twist." We are seeing:
The 2 and 3-year Treasury issuance growing at ~30 percent, The belly of the yield curve growing at less than 10 percent, The Long End growing at > 20%
So what is going on here?
The Gross Misinterpretation - "The Yield Curve has Inverted" We immediately find ourselves reading headlines from the news sources that The Treasury yield curve just inverted, sounding the alarm for recession. An inverted yield curve immediately triggers the conclusion that we are not only now late in the credit cycle but may potentially already be in the early stages of the long overdue and highly anticipated recession. Everyone reacts accordingly. But is this in fact what the yield curve inversion is signaling?
We suspect what we are realistically witnessing a massive bond short squeeze. We warned of this problem on 04/28/18.

What is occurring is that futures traders are seeing an opportunity to take profits on their massive short positions and re-balance portfolio exposure.
What ignited their actions was last week's speech by Fed Chairman Jerome Powell. The trading community specifically focused on Powell's statement: “we will remain just below the broad range of estimates of the level that would be neutral for the economy." They found it very... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 245.88   0.0 0.00 5.17 2.11
SPDR S&P 500 ETF 269.84   0.0 0.00 5.02 1.86
PROSHARES ULTRAPRO SHORT S&P 500 41.38   0.0 0.00 0.00 1.79
PROSHARES ULTRASHORT S&P 500 39.13   0.0 0.00 0.00 1.76
POWERSHARES QQQ TRUST SERIES 1 165.10   0.0 0.00 1.31 0.80

SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA  


Older articles featuring Spdr Dow Jones Industrial Average Etf Trust (DIA):
To Fear Or Not To Fear The Yield Curve
The Inverting Treasury Yield Curve And The S&P 500
The U.S. Yield Curve Inverted. Time To Worry?
Why Are Markets Spooked By A Flattening U.S. Treasury Yield Curve?
Is There A Signal In The Noise? Yield Curves, Economic Growth And Stock Prices
Is A Flat Yield Curve A Harbinger Of Bad News?
Crash Caused By Yield Curve Inversion And Bank Sector Weakness
On The Yield Curve Inversion: The Camel's Nose Is In The Tent - Maybe
Truce - All Is Good, Oil Rallies 5%, Dollar Down And Yields Higher
The Yield Curve Is Not Forecasting A Recession

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