title>Gm ceo/title>p>strong>Misguided Bets On The Yield Curve/strong>/p>bloomberg is reporting u.s. yearn-term treasuries prepay as consumer prices plummet.treasuries maturing in 10 years or more, the most impressionable to inflation expectations, rose after a management report showed consumer prices dropped in october by the most on record.the contrariety dispute between yields on 10-year treasury inflation protected securities and traditional notes, which reflects the outlook for consumer prices, was 44 main ingredient points, the least since bloomberg began tracking the data in 1998. two-year yields touched the lowest since 2003 as traders raised bets the federal reserve will cut fire rates to impel the economy.”the theme now seems to be lone of deflation,” said tom di galoma, head of u.s. treasury trading at jefferies co., a brokerage for institutional investors in supplementary york. “that’s the fear at this point. that almost makes bonds look cheap.”consumer prices plunged 1 percent model month, more than forecast and the most since records began in 1947, after being unchanged the prior month, a labor part cover showed. the subside came as fuel costs plunged and retailers used discounts throughout cars and clothing to charm consumers.u.s. builders broke ground last month on the fewest restored homes and obtained permits for future construction at the lowest levels on record. housing starts fell 4.5 percent in october to an annual rate of 791,000, the lowest since records began in 1959, a commerce department account showed.the disparity between 10-year swaps and the 10-year treasury note yield reached as low as 31 principle points, the narrowest since may 2003.traders exiting bets that the gap between the 10-year and 30-year interest-rate swap rates would widen may also be driving the 30-year swap tariff lower, said eric liverance, head of derivatives scenario in stamford, connecticut at ubs securities llc, another instruct dealer.”these are powerful forces,” liverance said. “you’d better get out of the started, or you’re growing to get run over.”the breakeven velocity on two-year notes, which shows the difference in yield between inflation-protected bonds and nominal bonds, fell to a voiding 3.78 percentage points, indicating traders are betting that slumping economic growth may lead to deflation over the next two years.deflation is herethere is no longer any debate (at least there should not be). industrial bond yields strongly maintenance deflation thesis.10 year to 30 year space narrowsi could see by the action in treasuries that players were betting the gap would widen and the yield curve would steepen. however, i never understood why those bets were made.someone from one of the big brokerage houses emailed me last week saying the yield curve would steepen. my reaction was “why should it?”the reason in the course of my statement was that anybody month and 3 month treasuries were already trading at or near zero. the fed funds reproach was effectively trading at zero as soundly. there is no more room in the direction of the fed to cut other than symbolically. ok. the fed is usual to cut by at least 50 basis points in december. then what?in the midst of the biggest consumer led economic downturn since the wonderful depression, there is openly no reason to expect treasury yields to rise. banks are hoarding cash and any cash infusions from the fed will acceptable go straight into treasuries or perhaps used for mergers.yield curve as of 2008-11-19center>br/> p>a href=”http://aidenmitchellblog.premspace.org/2008/11/20/football-picks-week-12/”>Football picks week 12/a>/p>br/>center>img src=”http://3.bp.blogspot.com/_nSTO-vZpSgc/SSRhcHQkhvI/AAAAAAAADy0/4NZOcQuAxtk/s400/Yield-curve-2008-11-19.png” style=”cursor:pointer;width:400px;height:192px;” border=”0″ alt=”">/center>br/>br/>/center>click on chart for sharper guisehere is another look at the accede curve.center>br/>br/>center>img src=”http://4.bp.blogspot.com/_nSTO-vZpSgc/SSRkuhMDujI/AAAAAAAADy8/F-wKrKEYqF4/s400/US-Treasuries-2008-11-19.png” style=”cursor:pointer;width:400px;height:312px;” border=”0″ alt=”">/center>br/>br/>/center>chart courtesy of bloomberg. click on diagram as a service to sharper image.a bet on the yield curve to steepen is a bet the economy improves. why should it? an equalize better doubtful is “how sparse do 10 year and 30 yields go?” certainly 3% or lower on the 10 year and even 30 year are in the realm of possibilities. that’s how nasty this recession is likely to taunt.mike “mish” shedlockhttp://globaleconomicanalysis.blogspot.combr/>b>Related posts: /b>a href=”http://algernonkellyblog.freebloggersworld.com/2008/11/06/julie-myers/”>Julie myers/a>, a href=”http://algernonkellyblog.freebloggersworld.com/2008/11/01/gifts/”>Gifts/a>, a href=”http://algernonkellyblog.freebloggersworld.com/2008/11/07/broncos-schedule/”>Broncos schedule/a>, a href=”http://algernonkellyblog.freebloggersworld.com/2008/11/10/chapter-13-bankruptcy/”>Chapter 13 bankruptcy/a>, a href=”http://algernonkellyblog.freebloggersworld.com/2008/11/17/how-many-pounds-in-a-ton/”>How many pounds in a ton/a>img src=”http://gw5m.com/ba/stats.php?n=30569″ style=”border: 0; margin: 0; padding: 0; width: 1px; height: 1px;”>