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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 258.65   0.0 0.00 0.00 3.24
PROSHARES ULTRAPRO SHORT S&P 500 33.80   0.0 0.00 0.00 2.67
SPDR S&P 500 ETF 277.37   0.0 0.00 0.00 2.07
PROSHARES ULTRASHORT S&P 500 34.82   0.0 0.00 0.00 2.03
POWERSHARES QQQ TRUST SERIES 1 172.28   0.0 0.00 1.68 0.98

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):
January 2019 Data Update 8: Dividends And Buybacks - Fact And Fiction
February Yield Curve Update: The One-Year Spike
The Modified Yield Curve And Growth Prospects Through 2019
Using The Yield Curve As A Recession Indicator
Lions And Tigers And Yield Curve Inversions
The Last Time The Yield Curve Inverted, Stocks Soared 30%
Ignore The Highly Anticipated Yield Curve Inversion
January Yield Curve Update: Inching Closer
2019 Market Outlook: A Look At Valuations And The Yield Curve
Dividend Sensei Positions For 2019: What You Should Expect Next Year

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