Central Banks Don’t Know What They Are Doing……And Credit Markets Now Know It

Checking the eurodollar curve shows that it does indeed appear as if the July-September trends are back in place. The dominant theme was for shorter maturities to be ‘tight’ while the general eurodollar curve grew flatter out past some (dynamic) ‘attachment’ point where the monetary policy window ended. That threw together a few important variables, including estimates of potential rate hikes and how high they may eventually get, and, perhaps more importantly, how damaging they may ultimately be (flattening).
This tight/flat trend took a breather at the end of September, if only for a few weeks reprieve in downstream markets (gold, Brazil, Russia, etc.). Since mid-October, even before the FOMC’s latest faux ‘hawkish’ stance, the curve moved back to the tight/flat again that was mimicked not just in appearance of the curve movements but in the relatively small degrees to which each segment was carried out.

So far in November, that remains the case though it is difficult to see it below since the changes are so very slight – tighter short (June 2016 3.5 bps) and flatter long (June 2021 1 bp).

This post was published at David Stockmans Contra Corner on November 6, 2014.