Posts Tagged ‘10-year Treasury yields’

QE2′s Effectiveness

Wednesday, February 9th, 2011

This post is an update to that of December 9, 2010, “Measuring QE2 Effectiveness.”

There are many different ways one could use to gauge whether QE2 is successful.  Of great significance, I am not aware of any official statement that specifically states the goals (and metrics of such) of QE2.

However, lowering of interest rates, especially that of the 10-Year Treasury, appears to be a/the primary goal.

Below is a chart of the 10-Year Treasury yield, starting on November 3, 2010, the date of the announcement.  The actual asset purchases began on November 12:

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

As one can see, the 10-Year Treasury yield has risen substantially over this period, rising from 2.594% on the close of November 2, 2010 to 3.725% as of yesterday’s (February 8, 2011) close.

As for the goal of (modestly) increasing inflation, there are no daily CPI values available for this period.  However, if one uses values from the Billion Prices Project (which I discussed in the November 24 post) as a proxy, the index values have increased.  The index was 100.76 on November 3;  100.6679 on November 12;  and 102.0273 on February 7.

I plan on further commenting upon QE2 and its apparent effectiveness in future posts.  (all past posts on Quantitative Easing can be found here)

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A Special Note concerning our economic situation is found here

SPX at 1324.57 as this post is written

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Measuring QE2 Effectiveness

Thursday, December 9th, 2010

In announcing QE2 in their November 3 FOMC meeting, the statement contained the following excerpt:

“Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. Although the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, progress toward its objectives has been disappointingly slow.

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month. The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.”

There are many different ways one could use to gauge whether QE2 is successful.  Of great significance, I am not aware of any official statement that specifically states the goals (and metrics of such) of QE2.

However, lowering of interest rates, especially the 10-Year Treasury, appears to be a/the primary goal.

Below is a chart of the 10-Year Treasury yield, starting on November 3, the date of the announcement.  The actual asset purchases began on November 12:

(click on chart to enlarge image)(chart courtesy of StockCharts.com)

As one can see, the 10-Year Treasury Yield has risen substantially over this period.

As for the goal of (modestly) increasing inflation, there are no daily CPI values available for this period.  However, if one uses values from the Billion Prices Project (which I discussed in the November 24 post) as a proxy, the index values have actually decreased.  The index was 100.76 on November 3; 100.6679 on November 12; and 100.51 on December 7.

It will be very interesting to see whether QE2 seems to meet its objectives.  Of course, if QE2 fails to reach its objectives, perhaps the foremost question would appear to be why this is so.  I plan on further commenting upon QE2 and its apparent effectiveness in future posts.  (posts on Quantitative Easing can be found here)

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A Special Note concerning our economic situation is found here

SPX at 1232.55 as this post is written

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Market Overview – Part III: Bond Market & Interest Rates

Tuesday, October 26th, 2010

(this is the third in a series of five posts concerning the markets)

The bond market is believed by many to be an asset bubble.  I agree with this assessment, and have written a few posts on the subject.  I discussed when it may “burst” and other considerations in an October 4 post.

The chart below shows the 10-Year Treasury Yield from the mid-90′s on a monthly LOG basis.  As one can see, the yield has been less than 4% since the latter part of 2008:

(click on image to enlarge charts)(charts courtesy of StockCharts.com)

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The next chart shows a one-year daily chart with the 50- and 200-day MAs (Moving Averages).   At 2.55%, the rate is just at the 50-day moving average (shown in blue) and considerably below the 200-day MA shown in red.  From this view, it appears as if there may be some mild upward pressure on rates:

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When one takes a slightly different view, by using a 13 and 34 day EMA (Exponential Moving Average) and adds the MACD indicator, however, it appears as if there may be considerably more upward pressure:

A pivotal question at this point is what impact will additional QE (Quantitative Easing) measures have on lowering rates.  As I have previously commented, “One question that looms large is whether any rate-suppression effect that additional QE may have is already “priced into” the market, as additional large doses of QE has been widely expected for a while now.”

Now onto Part IV, the stock market…

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A Special Note concerning our economic situation is found here

SPX at 1185.62 as this post is written






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The Threat Of Rising Interest Rates

Tuesday, April 6th, 2010

As seen on the following 10-year daily chart, the 10-Year Treasury Yield has been rising as of late:


chart courtesy of StockCharts.com

There is very little general expectation for a significant rise in interest rates.  In fact, the average economist forecast (as seen for the March 2010 Wall Street Journal Economist Survey) for the 10-Year Treasury Yield for December 31, 2010 is 4.24%.

I believe that there is high potential for interest rates to rise faster than expected, and the economic implications of such, should it happen, can hardly be understated.

Falling interest rates over the last 20 years have been an “enabler” of much of our current day economy.  These falling interest rates are seen in the 20-year monthly chart shown below:


chart courtesy of StockCharts.com

Of course, a significant rise in interest rates would have adverse effects on many different economic areas, and would likely serve to impair and/or derail any hopes of an economic recovery.  Some areas that would be impacted by rising interest rates would include: real estate, all facets of lending, the bond market, corporate profitability, etc.  The list is virtually endless.

Furthermore, consumer spending would likely be impaired, as would the government’s ability to rather cheaply (and easily) fund the outsized deficits and debts.  As well, the government’s ability to “stimulate” the economy through deficit spending could largely be impeded.

I’ve previous mentioned (in a December 2nd post) that I believe that U.S. Treasuries are in a “bubble.”  While some have expressed the same view, it doesn’t appear as if there is recognition of the perilousness of such a condition.

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SPX at 1187.44 as this post is written

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The Yield Curve As A Leading Indicator

Monday, March 1st, 2010

Here is a link to the NY Fed’s page regarding the yield curve (specifically the 10-year rates vs. 3-month rates) as a leading indicator.

What I find interesting is that the chart (pdf, at this link) plotting the current probability of recession indicates an imperceptibly small .04% chance of recession as of January 2010.  As seen in the chart (as well as accompanying data file) the recent peak was in the 40%-50% range in the latter part of 2007 and into 2008.

Of course, I strongly disagree that there is currently a .04% of recession.

On the NY Fed link above, they have posted numerous studies that support the theory that the yield curve is a leading indicator.   My objections with using it as a leading indicator, especially now, are various.  These objections include: I don’t think such a narrow measure is one that can be relied upon;  both the yields at the short and long-end of the curve have been overtly and officially manipulated, thus distorting the curve; and, although the yield curve may have been an accurate leading indicator in the past, this period of economic weakness is inherently dissimilar in nature from past recessions and depressions in a multitude of ways – thus, historical yardsticks and metrics probably won’t (and have not) proven appropriate.

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SPX at 1110.87 as this post is written

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Peril In The Markets? Part II

Monday, September 14th, 2009

I have included two charts of the Ten-Year Treasury yields below – one daily and one monthly.  The monthly is provided for a longer-term perspective.

I would like to address the daily chart.  It seems odd that in an environment in which

  1. inflation is (purportedly) a growing concern
  2. the economy is supposedly recovering faster than anticipated
  3. Treasury debt auctions have been materially increasing in size

that since roughly early June, the Ten-Year Treasury yield has been decreasing:

EconomicGreenfield TNX Daily 9-14-09

Ten-Year Treasury Yield Daily 1-Year Chart

Chart Courtesy of StockCharts.com

EconomicGreenfield TNX Monthly 9-14-09

Ten-Year Treasury Yield Monthly Chart

Chart Courtesy of StockCharts.com

Additionally, is it not odd, on an “all things considered” basis, that the Japanese Yen is rising at what appears to be an increasing rate?  This rise commenced in mid-2007, as seen below:

Yen Daily

Yen Daily

Chart Courtesy of StockCharts.com

Now on to Part III…

SPX at 1042.73 as this post is written

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10-year Treasury Yield

Sunday, May 31st, 2009

It is interesting that there has been relatively little commentary on the increase of the 10-year Treasury yield.

In my opinion the rise is significant in many ways.  Perhaps chief among them is the fact that the yield has risen sharply (to a current 3.46%) despite a large-scale intervention designed to bring yields lower.   This divergence is significant because it raises the question as to whether we are witnessing a failed intervention.  While it is probably too early to classify it as such (due to, among other things, the fact that there is likely to be more purchases) perhaps the word “errant” might be more appropriate at this juncture.  At any rate, the increase in yields bears close watching.

Upon originally hearing of the intervention plans to purchase Treasury and Mortgage Backed Securities in order to bring rates down, I thought the plan was flawed in many fashions, both theoretical and practical.

For those unaware, I have previously written an article that discusses the hidden risks and unintended consequences of interventions; it can be found here:

http://www.economicgreenfield.com/prosperitybypencom-directory/interventions-potential-blindspots/

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