{"id":322,"date":"2009-05-07T21:03:59","date_gmt":"2009-05-08T02:03:59","guid":{"rendered":"http:\/\/multithreader.com\/TheInquisitiveMind\/?p=322"},"modified":"2009-05-08T05:48:54","modified_gmt":"2009-05-08T10:48:54","slug":"food-for-thought-ideal-interest-rate-versus-the-yield-curve","status":"publish","type":"post","link":"http:\/\/multithreader.com\/TheInquisitiveMind\/2009\/05\/07\/food-for-thought-ideal-interest-rate-versus-the-yield-curve\/","title":{"rendered":"Food For Thought: Ideal Interest Rate versus the Yield Curve"},"content":{"rendered":"

On April 27, FT carried an article<\/a> which showed that an internal study at the Fed suggested that the ideal interest for the current economic situation was -5%. <\/p>\n

Today the 2yr-30yr bond yield spread stands at 325 bp<\/a>.<\/p>\n

According to Across The Curve<\/a> the highest level reached by this spread was 367bp, when the 2 year bond yielded 3.60 and the 30 year yielded 7.29 in October 1992. <\/p>\n

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This is an extreme divergence. On one hand, the Fed feels that it needs to go to negative interest rates to prevent deflation. <\/p>\n

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the yield curve is at one of its steepest levels, ever. <\/p>\n

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This is a divergence of historic proportions and shows a market which is not balanced.<\/p>\n

I am not sure for how long such an unstable state can continue. <\/p>\n

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However, such imbalances typically do not end well for many market participant
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\nUpdate:
\nThe spread between fixed rate mortgages and 10 year yields<\/a> has contracted substantially to a level typically seen when the risk associated with mortgages is considered negligible. <\/p>\n

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This is a result of the Fed’ s policy to buy MBS. <\/p>\n

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However if the yields continue to move higher, mortgage rates have nowhere to go but up. <\/p>\n

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On April 27, FT carried an article which showed that an internal study at the Fed suggested that the ideal interest for the current economic situation was -5%. Today the 2yr-30yr bond yield spread stands at 325 bp. According to … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[175,176],"tags":[234,167,201,200,235,236,237],"_links":{"self":[{"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/posts\/322"}],"collection":[{"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/comments?post=322"}],"version-history":[{"count":3,"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/posts\/322\/revisions"}],"predecessor-version":[{"id":324,"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/posts\/322\/revisions\/324"}],"wp:attachment":[{"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/media?parent=322"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/categories?post=322"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/multithreader.com\/TheInquisitiveMind\/wp-json\/wp\/v2\/tags?post=322"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}