The image is the yield curve as posted on the Schwab Institutional web site from a few minutes ago. Last night there was something of a debate about this in the comments of yesterday's post. There were a few mentions of this around the web.
If you click on the image you will see that nine months out is the only point where AAA corporates yield less than treasuries based on Schwab's inventory. Well actually I found a two year corporate rated AAA yielding 1.135% versus the 1.183% on the matrix pictured above. The yields on the matrix are the highest available.
The inventory of three year AAA corporates are multiple offerings of the same issue with yields ranging from 1.564% you see on the matrix down to 1.275% versus 1.530% for treasuries. I should note that the 3 year corporate in question doesn't actually mature until May 15, 2013.
For what it is worth there are several Berkshire Hathaway five years, AA rated, with yields right around 2.7% versus the 2.405 for five year treasuries.
For now this is merely interesting and worth paying attention to. It is either an anomaly that will be explained after the fact or it is significant. I'm not sure and of course paper offered is not paper traded. I have no conclusion yet but it is interesting.
8 comments:
That could become interesting. I consider David Goldman's assessment at http://bit.ly/9axezq that this is a "purely technical artifact of the yield curve and the carry trade" definitive but will keep my eye on it in case the spread gets big enough to be worth shorting (unlikely but who knows, it's getting crazier out there every day).
10yr swap spreads trading negative now as well (swap yield lower than trsy yield).
Can this be a prelude of a flat yield curve. 9 months above 3%. Should be purchased.
Jeff from milan, italy
You think it is interesting now, just wait a few years as the US continues to accumulate excessive debt levels. Then it will get really interesting.
Eventually people might realize we can not borrow our way to prosperity, but I'm not counting on it.
SEG
Seg,
what is the way out of this mess, in your openion?
Jeff from Milan, Italy
Pricing anomalies at the shorter end of the curve or in the swap markets are interesting but against the zero-interest rate boundary things can get pretty noisy and more than just a little weird. The trend at the long end however is something else and it is telling a very different story of unprecedented spreads between corporates and treasuries; e.g., http://tinyurl.com/yf536p4
Jeff,
The fraud by fannie, freddie, the banks, and insurance companies has been so massive that bad debts will be recognized for years to come from SIV, underwater mortgages etc.
There is no nice way out, but bridges to no where and other garbage paid laden with corruption and passed on to the next generation is not a solution.
As bad as things were allowed to get from Greenspan and then Bernanke (2 decades of bubble mentality) the only real solution is to stop bailing out banks and others and let them fail.
Save the depositors. Save the banking system. But the stock holders and bondholders of these institutions should not be bailed out by the taxpayers.
The Volker rule does not go far enough in my opinion but it is the best suggestion offered to date.
Reduce government debt through much lower spending. The fed can and should print to prevent deflation, but not more.
I obviously have not addressed everything, but wasting good money to drag out zombie banking like Japan and bridges to no where like Japan obviously does not work. Did not work but Japan has trillions and trillions in debt now. So why so many people are in favor of this nonsense is beyond reason.
There is no nice way out of a stock market bubble that was "fixed" by a housing bubble. Making the governments take on trillions of dollars in debt to "fix" the housing bubble is crazy.
Unfortunately, this is something we must endure while it works itself out over several years. I would just like to not see any more of the burden taken on the backs of the taxpayer. It will not fix anything, but only drag out the process. The price to our children is not worth dragging this out.
SEG
You are correct, but in Washinghton, there are not many like Volcker. The war in 60's and many programs were paid by printing money. The 70's was pay time by inflation. We still had a good bull market in the 80's and 90's. I was in college in the 70's and It was great time to get out of college in the '80 and get a job. Life will not end. US is very resilant and the free market structure is great to get back on it's feet. I think the wars in Afgan and Iran recently have been a morale, and wealth destruction for the country. The housing problem has been crazy.
Thanks for your response.
One day I like to know your monetary model, or a description, if you like to share.
Again, Thank you,
Jeff from Milan, Italy
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