Federal Reserve Puzzled by Yield Curve

IanMacQuaide

IanMacQuaide

WASHINGTON (Reuters) - The Federal Reserve is studying significant moves in the U.S. government bond market last week that could have big implications for the central bank's strategy to combat the country's recession.

But the Fed is not really sure what is driving the sharp rise in long-dated bond yields, and especially a widening gap between short and long term yields.


http://www.reuters.com/article/ousiv/idUSTRE54U1NZ20090531

I thought the Feds were financial experts:confused:
Ya mean they can't save us?:p
 
Dont believe them. Its just like walking into a room and seeing spilled milk on the floor and a kid standing right next to the milk.

Grown up: How did this happen?

Kid: I dont know.

Grown up: Did you spill this milk?

Kid: No

Grown up: then who did?

Kid: I dont know

Fed is acting like a kid hoping to not get the blame for all this.
 
Maybe what the Bond market is telling us is that investors think the economy is stablizing and that the confidence of long term investors is returning.

Runningbear.
 
Quote from Runningbear:

Maybe what the Bond market is telling us is that investors think the economy is stablizing and that the confidence of long term investors is returning.

Runningbear.
More...

That's not it at all.

You've gotta be kidding me.

Look at oil, gold, and wheat just to name a few. The dollar is gonna be trash and they're protecting against inflation on the long end (dumping bonds). Fed has the low end pinned. I don't understand what the fed doesn't get.
 
Quote from Runningbear:

Maybe what the Bond market is telling us is that investors think the economy is stablizing and that the confidence of long term investors is returning.

Runningbear.
More...

I'm telling you that this is the exact opposite of 2004 when the Fed began raising rates, and the 10 year yield began to fall. This is the "conundrum" that Greenspan mentions. This was at the beginning of a multi-year bull market.

Now we're experiencing just the opposite...fed drops rates, embarks on Q.E., and 10 year rates climb. I tend to think that this is a red flag, and a very large one at that.
 
Quote from IanMacQuaide:
But the Fed is not really sure what is driving the sharp rise in long-dated bond yields......and especially a widening gap between short and long term yields.
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1) Default risk
2) Fed policy influences the short-end of the curve. The long-end of the curve is in its own world.
3) The bond market may also be "imposing" discipline on government to not increase taxes too much which leads back to (1). :cool:
 
Quote from circadian:

I'm telling you that this is the exact opposite of 2004 when the Fed began raising rates, and the 10 year yield began to fall. This is the "conundrum" that Greenspan mentions. This was at the beginning of a multi-year bull market.
More...

That ended up in the inverted yield curve around 2007. So why is that a conundrum?
 
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