Drudge Retort: The Other Side of the News
Friday, February 02, 2018

The spread between longer-dated U.S. Treasury yields and short-dated ones contracted to the slimmest in over a decade on Wednesday as the government favored selling more short-dated debt than longer-dated issues to finance the projected rise in its budget deficit. The yield curve also flattened as the Federal Reserve bolstered the notion it would raise key borrowing costs at least three times in 2018 on an expected pickup in inflation. "We are big advocates of the flattener trade," said Mark Lindbloom, portfolio manager at Western Asset Management Co. in Pasadena, California with $442 billion in assets. The yield curve has further room to flatten longer term with intermittent bouts of steepening, Lindbloom said. Month-end purchases of longer-dated Treasuries was another factor that flattened the yield curve as investors reallocated money into bonds from stocks after the S&P 500 index recorded its best month since March 2016.

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Longer-dated Treasury yields initially rose on Wednesday when the government said it will increase the monthly auction size of 10-year and 30-year debt. They quickly retreated when traders focused on faster increases in two-year and three-year maturities versus the rise in longer-dated supply.

"They were more aggressive on the front-end than what people had expected," said Tom Simons, money market strategist at Jefferies & Co. in New York. A Washington think tank estimated the federal budget gap would surpass $1 trillion in 2019 and may hit $2 trillion in 2027 stemming from late December's massive tax overhaul. The spread between five-year and 30-year Treasury yields shrank to near 41 basis points, a level not seen since August 2007, before finishing at 42 basis points in late trading, according to Tradeweb.

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GOP Tax cut is killing the bond market. Dow is down 500.

"Markets opened lower Thursday and bounced around the break-even line for most of the day. Falling bond sales are pushing yields on 10-year Treasuries to near 2.8%. For some reason, some traders are worried about inflation as the labor market continues to tighten implying growth in wages and, ultimately, higher prices. If that happens, the Fed might raise interest rates more quickly which could cool off borrowing and future investment."

Not good for future economic growth.

#1 | Posted by 726 at 2018-02-02 02:33 PM | Reply

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