The Banking and Strategy Initiative

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US Economy (EoD Review): Yield Curve steepening at the short(wrong) end

Goldman Sachs took its turn to mute down expectations for Q2, betting on a lower GDP growth rate of 2% (zerohedge) but confirmed a Jobs accretion of 150k per month which will atleast keep more jobs coming that increase in the labor force and people will have a hope of getting jobs back. However with the yields rising faster on the shorter end, the Yield curve / term structure is steepening at the wron g end, investors increasingly avoiding US as a long term bet even though the rise in interest rates wherever it is happening will at least give the Economy head room to move up and down

The Verdict: Things will stay slow but for the better not for worse.

10 year yields are back to near 2% as the day’s $26 bln 10 year auction netted a 2.043% cut off (awarded) while the Dollar started strengthening pre market leading Commodities down and rubbing off on equities, Investment grade credit back in the highlights again.

Meanwhile the long term trend for the US economy again raises the spectre of the US swtiching lanes to a permanent low growth negative interest rate scenario like in Japan with the March deficit of $198 bln , the largest number on record and comparable to the February figure of $230 bln which has historically been higher. The spending is what is eroding long term confidence as tax revenues are strong at $69 3 bln, unfortunately however we have already raised $775 bln in debt in the same period October – March 2012, a deficit of $779 bln not really better than $830 bln last year, March deficit has been as low as $80 bln over the last 10 years and as we said in the morning we expected a strong performance in this data announcement, with all the defence spending cuts and even in healthcare and education

Spain’s unemployment ticked up to 24% even as markets stayed stable on Spanish prospects ahead of the Italian auctions tomorrow. German bunds faced most investor ire today as they were unable to raise the targeted Eur 5 bln in today’s auctions.



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This entry was posted on April 11, 2012 by in Amitonomics, US and tagged , , , , , , , .


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