Friday, June 8, 2007

Yield Curve

The US yield curve had been inverted for most of the past year, with 2 year yield higher than 10 year. This is supposedly "bad" for the economy, but the stock market did extremely well during this period. Now that the yield curve has resumed its "normal" shape, the stock market welcomed that with a warm hearted sell-off...

The sharp rise in long term rates yesterday is at least partly spooked by the latest comments from the Bond King: Bill Gross revised his long term interest rates view and now believes the 10 year yield could rise to 6.5% in the next 5 years.