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May 2019 Yield Curve Update

Published Wed, 12 Jun 2019 06:18:51 -0400 on Seeking Alpha

Good news on the monetary policy front. The Fed has been signaling a willingness to ease, and currently, futures markets are predicting a 25 basis-point rate deduction in July (with some probability even of a 50 bp deduction!). Initially, this brought the yield curve down out to several years, but in the days since then, the short end of the curve has remained lower while the curve from 2020 onward has recovered back to late May levels. That's a great sign. Maybe the Fed will ease enough to avoid a contraction.
The primary thing to look for in the yield curve, I think, is the reaction of the long end. I think we are clearly in inversion territory now, which means that there has been some distortion in long-term yields. As short-term yields decline, that distortion will be eased, and long-term yields will initially decline along with short-term yields. Eventually, the positive signal will be a divergence between short and long-term rates, with a flattening of the short to mid-term curve and a slight upward slope. It seems as though the Fed is willing to be aggressive enough to make that happen. This is a positive surprise to me.
Expectations have changed so sharply that already, if you look at the December 2020 contract on the Eurodollar curve, half of the gap between the November peak rate of about 3.2% and 0% has already been filled. In terms of taking a long position on forward rates, the horse is already mostly out of the barn. If the Fed is aggressive, forward rates... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
VANGUARD EXTENDED DURATION TREASURY ETF 147.60   0.0 0.00 0.00 2.19
SPDR BARCLAYS CAPITAL 1-3 MONTH T-BILL ETF  

VANGUARD EXTENDED DURATION TREASURY ETF - EDV
VANGUARD EXTENDED DURATION TREASURY ETF - EDV  


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