Thursday, November 25, 2010

Treasury Spreads: November 2010

The Treasury spreads are always informative in terms of understanding the future trends in inflation expectations. There may be changes as we see QE2 in that Treasury can manipulate spreads via the FED. We leave that analysis to a later time.

The above shows a set of yield curves. The curve has gotten steeper from its August flat point showing an increase in long term yield.

The above depicts the yield curve by duration for more points of the tracking period, indeed from the beginning of the current administration. We see the curve coming back to where it was except that short term yields have risen.

The spread is increasing again and we see it returning to more reasonable norms. This is driven by the increasing long term yields.

The above shows the spread and its elements and clearly depicts the short term flatness and the long term increase. We expect that this is a sensing of inflation yet depressed by FED control in anticipation of Q2.

This depicts the spreads again. They should be watched in anticipation of QE2 impact.