Wednesday, October 29, 2014

Quick Update on Forward Rates

Here is a chart of recent yield curve fluctuations.  The changes are more straightforward than I would have thought just from recollecting the month's news.

From mid-September to mid-October, the long end of the curve moved down about 60bp, after already giving up 100bp since the beginning of the year, and, at the short end of the curve, expected rate increases moved forward in time about 1 1/2 quarters after being fairly stable all year.

Since October 15, rates at the long end have moved back up about 20bp and the rate increase timing has moved back by about 1 1/2 months.

For all the questions regarding credit markets and Fed policy, the movements up to today looks to me like just a general ebb and flow of long term growth sentiment, first worsening, and now recovering slightly.

Today, all the movement was in the timing of the rate hikes.  Long term rates remained roughly level, even falling slightly by the end of the day.  The expected rate hikes moved back, so the entire curve shifted back in time by about 1 month today.  This, combined with the small decline in equities, suggests that the Fed statement today was taken as a slight tightening, implemented through stronger resolve in implementing rate hikes.


  1. TravisV here.

    Doesn’t Bill Gross’s argument here fly in the face of the TIPS breakeven’s response to QE2 and QE3?

    “The roughly $7 trillion pumped into the financial system since the financial crisis by the world’s three biggest central banks has succeeded mostly in lifting prices of securities rather than the cost of goods and workers’ wages, he said.

    “Prices go up, but not the right prices,” Gross wrote.


    “One economy (the financial one) thrives, while the other economy (the real one) withers,” he said.”

    1. The board at PIMCO might remind him that the price of bonds didn't go up during QE rounds. That's a security, isn't it?

      This whole "assets went up but not wages" meme is such baloney.