When Matt Hedrick signed up to wear the Hedgeye Risk Management jersey, I don’t think he thought he was going to be charting our fundamental views in pink. Get used to it Matt - really rich piggy bankers wear pink.
The chart below has a very high correlation with banker bonuses. Not only is this morning’s Piggy Banker Spread the widest it has EVER been, Bernanke’s banker bonus inspiration outruns Greenspan’s by a considerable margin. That’s saying something!
Academic types call this the yield spread. This is the difference between 10-year and 2-year US Treasury yields. This is also the difference between what American savers earn on their fixed incomes and what the bankers borrow to them on their loans. Iggy piggy, indeed…
While 10-year yields have been busting a move to the upside ever since the November US employment report, they have been making a series of higher-lows since this time last year. The long term TAIL for long term interest rates, in our risk management speak, is BULLISH.
If you are looking for another opinion on this, ask a sell-sider who is pleading for perpetual short rates of ZERO. Goldman’s David Kostin has a 2010 Fed funds target of ZERO and a 2010 forecast for 10-year yields of 3.3%.
Warning: that GS estimate is what Washington’s economic groupthink team of Larry Summers, Timmy Geithner, and Christina Romer call a “blue chip” estimate.
Today’s marked-to-market price for 10-year yields is 3.71% and, for the bankers at GS at least, this chart definitely tickles them pink.
Keith R. McCullough
Chief Executive Officer