Home > Main > 5 Year to post one of the largest 2 month moves in the last 40 years

5 Year to post one of the largest 2 month moves in the last 40 years

December 29, 2010

Unless something dramatic happens later this week, the 5 year will post a huge percentage move. That is a log scale chart of the 5 year.  Rates have doubled in the last two months.

The move is nearly as large as the moves during the worst parts of the crisis, when there was widespread and legitimate fears the financial world was about to blowup. What is the comparable fear or hope today?

There have been a few comparable moves over the last few decades.  All of these happened at the beginning phases of a recovery, and all of them took longer than 2 months.  If I recall, the bond vigilantes were vocal during those times too.   Only one of these moves continued, the move during the 00’s.

With rates so low, it is difficult to make comparisons.  Real rates have had a huge rally, but they are below their historical norms.  It is easy to imagine that real rates would have a recovery to the 1% level or so, and inflation gets back up to 2%.   and all of a sudden we have 5 year rates back up in the 3% range.   But will this happen next month?

On an absolute scale, this move is less unusual.  but when rates go from 5% to 6.5%, it just isn’t as big of a deal to me as when rates go from 1% to 2.5%

I wrote most of this post last night (Tuesday Night), and with todays ripping move back maybe the 5 year may not have as large of a move as I thought.   But those are still big, big moves.

The 30 yields closed lower than the lowest print yesterday.   The 10 year closed below the close on Monday, 5 year did too. I am sticking with my buy the news, sell the fact trade idea for QE II.

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