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    MARKET EDGES

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As of yesterday there was a 235 basis point spread between 2s and 10s. This is great for the capitalists who have cash.

We thought we would front run CNBC and Fast Money by a few weeks and make a call out on the yield curve, which Keith has been highlighting in our morning meeting. In one sentence - it is steep and steepening.

We are not ready to call the end of recession (it has just begun), but, as many of you know, typically a steep yield curve will foretell an improving economy as demand for capital expands with growth. In the shorter term, the implied margins for a bank are inherently higher as they borrow short and lend long, which should lead to an easing of current credit market tightness. This is one indicator only, but it is on the margin positive, and worth highlighting. Everything in our macro model occurs on the margin.

The yield curve today, from 1-year ago, and from 1-month ago is highlighted below. Internally, we focus on the spread between 2s and 10s, which have steepened dramatically. As outlined below, the spread was at 60 bps 1-year ago, as of 1-month ago it was 191 bps, and today is at 235 bps.

Daryl G. Jones
Managing Director