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Tuesday, March 15th, 2011
steep curve

It’s Fed Day.  And all of the voting members have quit taking my calls.

Above please find in the bottom panel two series from the full yield curve accordion — the 2s and the 30s — with a long enough history to show a variety of ways in which they can move relative to one another.  At the top is the spread between the two, still hovering near its highs.

Despite my entreaties, the Fed has an anchor on the short end, but it can’t control the long end, which has a mind of its own.  Those who have been around awhile know all about the “bond market vigilantes” that show up now and again.

Recent world events have goosed energy prices, increasing concern about inflation but also providing a potential headwind for growth.  Absent any changes in Fed policy, watching the charts above should give you a great look at the market’s shifting odds as to which effect will dominate.  (Chart:  Bloomberg terminal.)