In a reflection of increased optimism about the economy and lessened
expectations for rate cuts from the Federal Reserve, the inversion of the
Treasury yield curve is at its smallest in about two months.
The yield
spread between 3-month T-bills and 10-year T-notes, which tends to have the
best correlation to future economic activity, is now at -30 basis points
(bills yielding more than 10s) compared to a peak of -59 basis points on
Dec. 1. The current spread equates to recession odds of about 33% one
year hence, according to a study conducted by the Federal Reserve. It would
take a spread of about -80 basis points to push the odds above 50%.
P.S. Will you be there when Cramer makes his next move?
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Tony Crescenzi Blog Rate Cut Hopes Pushed Into 2H '07 12/28/2006 1:04 PM EST As the market lowers its expectations, Treasury prices decline.
Tony Crescenzi Blog New Data Could Hurt Stocks 12/28/2006 11:22 AM EST Data show trends that could spur weakness in the bond market, strong enough to drag down stocks.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
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