Tuesday, September 23, 2014

The "Rising" Interest Rate Environment

The following chart shows the natural log of the 6-month treasury yield. First, constant exponential growth (or in this case, decay) can be seen as a straight line. This makes it easier to see which way yields are growing and more importantly, how they are growing (or in this case, decaying). Second, using natural logs makes it easier to see the recent tiny movements in the nearly microscopic yields.

Click to enlarge.

As seen in the chart, there is little evidence that we shall be breaching the "line of death" anytime soon. We continue to drift away from it. Further, one might even argue that the bond market isn't expecting a robust Christmas season this year. Someone might argue that anyway and I certainly would not be the first to offer much in the way of a counterargument. I did manage to find someone who bought the breaching theory 5 months ago though.

April 2014
2014 Interest-Rate Outlook: Higher Rates for Borrowers, Little Change for Savers

The spread between short-term and long-term rates will grow. Here's what that means to you.

I absolutely love opinions stated as facts and what they must mean to me! Can't get enough!

Rising interest rates have been the talk of Wall Street—and Main Street—for months.

Months? Try years. Has this person been living in a cave since the Great Recession?

Despite the recent fluctuation in yields, the return on ten-year Treasuries has climbed more than one-half percentage point over the past 12 months, to 2.7%, and Kiplinger’s expects yields to reach 3.5% by the end of 2014.

There are just a few months left on the mythical 3.5% by the end of 2014 prediction. And while we are waiting for that, let me amuse you by describing the monkeys flying out of my, well, you know. Oh, yes. Here they come now! Very much the harbinger of higher real yields and renewed prosperity for all! Bottom yield monkeys for the win!!

Source Data:
St. Louis Fed: Custom Chart


Jazzbumpa said...

Niggling point but you have a bit of an apple-orange thing going on. Your graph is 6 mo T bill, and the text is 10 Yr.

You get pretty much the same pattern with 10 Yr, though, whether looking at ln values or straight %.




Stagflationary Mark said...


The 10 year isn't going anywhere without help from the 6 month! ;)

Keep in mind that the Fed Funds Rate is a 3 month rate. If/when the Fed does decide to eventually end ZIRP it will start at the short end. Even then, I'm not convinced long term rates will rise. That's especially true if the end of ZIRP breaks/brakes our economy again!

We're hobbling down the freeway at 20 mph and with just one lug nut on each wheel. Black smoke is billowing out our exhaust pipe and the engine is sputtering. I'm assured that we're doing better than most of the global economy though, lol. Sigh.

Overheating? I'll be surprised if we can keep this wreck moving through Christmas. ZIRP can't even keep oil above $100. Go figure.

Stagflationary Mark said...


I stated in my last comment that the Fed Funds Rate is a 3 month rate. It isn't. It's an overnight rate. It merely tends (and has tended) to be very close to the 3 month treasury yield (and the 3 month treasury yield is always on my mind, what little there is left of it).

mab said...

Hussman claimed that we were in a rising interest rate environment for what seemed like years.

And Cramer warned of the "bond vigilantes" back in 2012:


"Experts"!!!! Good grief. Is it possible to smoke koolaide?

If Cramer wants to be taken more seriously, perhaps he should try talking about "blondes without panties".

Jazzbumpa said...

Just to be clear, I wasn't disagreeing with you.

I took a hard look at the FF and 3 mo T-Bill rates a while back.

I'm not sure the Fed controls anything.



Stagflationary Mark said...


If Cramer wants to be taken more seriously, perhaps he should try talking about "blondes without panties".

10 Blond Winners of the New World! ;)

A-ha, that just leaves us with blondes without panties. That's why we keep coming back to it. That's why, despite the 80% increase blondes without panties last year, we are looking at another record year now. It is by that process of elimination that I have picked my top 10. And my next 10 and my next 10 after. Only those blondes are worth @#$%ing. The rest?

You can have them.

Okay, okay. I may have modified his article a tad. Hahaha! ;)

Stagflationary Mark said...


I'm not sure the Fed controls anything.

Controls prosperity propaganda? ;)