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.

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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.

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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

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

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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.

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