There is a lot of talk now about a flattening of the yield curve. This talk has been among the most intense right here at the website you are reading at this moment. A flattening curve is commonly viewed as bad for gold, and according to Mark Hulbert, is an indicator of a coming recession.
Why you should care about the yield curve
But is the curve really flattening or is this all hype based on Janet Yellen’s press conference comments? Here is a chart the likes of which we have been using in NFTRH for many months now, the 30 year vs. the 5 year yield.
MarketWatch shows a similar chart in its article…
Treasury curve now flattest since 2009
Here we should lend some perspective. Okay Beuller, I ask you what is different this time from the last flattening?
I am not going to pretend to sit here like some genius blogger and post all the conclusions so that we all know exactly what is going on (according to one guy’s imperfect world view). But what we do know is…
- In 2004 Alan Greenspan began to get the memo that his ultra lenient monetary policy had instigated a growing bubble in commercial credit.
- As the stock market and economy began to show favorable signs this policy was incrementally withdrawn, which in normal times would be the thing to do. The curve flattened in line with policy making goals (of tamping down inflation expectations).
- Unfortunately, it also tipped the leveraged system into a domino effect of high profile corporate financial failures, that resolved into the crash of 2008.
- Enter ZIRP in December 2008. This was brave new policy decreed by the will of man and endures to this day.
- The curve has been flattening for over a year now.
- Some Fed jawbone “you knowâ€, flapped about a withdrawal of ZIRP sometime well out in 2015, “that sort of thingâ€.
- There is a distortion built into the system. This is not opinion, it is a fact presented by the chart above. Now, how it will resolve is up for debate among various eggheads.
