Monday, April 7, 2014

The Fed's (Pig) Lip(stick) Service

Click to enlarge.

As the 10 year treasury yield doubled (black, left scale), the Fed Funds rate was cut in half (blue, right scale).

It would seem that the Federal Reserve Board doesn't have much confidence in rising interest rate theories (based on what they do compared to what they say).

The following chart shows the ratio between the two rates.

Click to enlarge.

Behold the "Great Bond Yield Bubble" of 2011. Been there, done that. (Note that a bond yield bubble is the inverse of a bond price bubble.)

Click to enlarge.

It might not seem like it for long-term savers in despair (or stock market investors still swinging for the fences at any price), but the 10 year treasury yielding roughly 40x the Fed Funds rate is a very rare treat. In the grand scheme of things, it just doesn't come around very often. That's especially true nearly 5 years into a strong and resilient "recovery".

This is not investment advice.

See Also:
Wiktionary: Lip Service
Wikipedia: Lipstick on a Pig

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2


CP said...

Stagflationary Mark said...

Hey, thanks! :)