Most of the talk about quantitative easing has focused on the effect of the Fed’s actions on the level of interest rates. However a great deal of bond market analysis goes into analyzing the shape of the yield curve. Since the height of the financial crisis short term interest rates have been essentially pegged at 0%. Therefore moves in longer term interest rates have driven the shape of the yield curve. Many of the transmission effects of monetary policy occur through these spreads, or relative rates, as opposed to the absolute level of rates. While the Fed has managed to engineer a steep yield curve, the question is whether this will induce either banks to lend more or for consumers to re-leverage their balance sheets. In today’s screencast we survey some recent items on the slope of the yield curve.
Items mentioned in the above screencast:
Dynamic yield curve tool. (StockCharts)
Don’t fight the Fed, illustrated. (Abnormal Returns)
The steep yield curve of the 1930s. (Decline and Fall of Western Civilization)
The balance sheet recession continues. (Pragmatic Capitalism)