Risk Management In The Land Of Nod: Kinked US Treasury Yield, Swaps and OIS Curves And Rising Volatility

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

The US financial market switched from “Eden” in the mid-2000s to “East of Eden” (or “The Land of Nod”) when the financial crisis struck and The Federal Reserve intervened like a wrecking ball.

With The Federal Reserve’s massive intervention in markets (and painfully slow retreat), we are now in a situation where the US Treasury curve, the US dollar swaps curve and the US Overnight Indexed Swaps (OIS) curve are all kinked.

curvee

Meanwhile, the ML MOVE index has been increasing as The Fed continues to unwind its balance sheet.

smartfedmove

But the reaction of wages in real terms? They haven’t changed much since 1964

wages-real9-18_0.png

And The Fed enabled a massive growth in Federal expenditures (and borrowing).

feddebtss

Most reasonable economists knew there would be hell to pay once The Fed had to let their balance sheet unwind and raised their target rate.

killerclowns

 

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

Leave a Reply