The yield curve on US Treasuries

Tom Keene from Bloomberg talks about the yield curve and some of the spreads that we are seeing in the current market, as well as that there are the seeds of the inflation story that we have been warning about since 2008.

Separately there are Harvard economists saying we need to see some inflation as it would prevent people from holding off on spending (look up the paradox of thrift and of deleveraging).

One final video worth looking at is the last one in this post, it poses the question ‘what will happen when the Chinese stop saving’.

One of the major oversights in this clip is that the Asian tendency towards savings is embedded in their culture, that means you can’t provide healthcare or anything else and expect the trend to end, it will probably take more than a decade for such a transition to occur because habits don’t change overnight, the ‘Chinese Way’ is not a movement that can turn on a dime.

The focus on trade links however is really interesting and the big …

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A look at Euribor, GBP Libor, and Libor

The graph below shows that despite different base rates in the US, UK, and Europe that our general interbank lending rates are correlated.

One of the issues the US has been struggling with is to get their long term rates down and you can see in the 5-7 year money range (I don’t have the 10yr TNote figures to hand), the idea is to get lending kick-started again, credit flowing is healthy, just not at the bubble levels. The 5yr figure is significant for personal lending and financing away from credit cards via personal facilities.

On the GBP Libor and Euribor the two yield curves are roughly matched so despite the UK having a base rate which is a full 75bips less than the ECB base they are still trading at higher margins. This is down to historic money pricing in the UK and it shows that Europe is truly pursuing a ‘middle of the road’ approach to rates, while the media focus is purely on the base rate …

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