Yield curve question

[Bob111]

Hi Everyone,

Of late, if it is not trade wars filling up the pages of the world media then they turn to yield curves. Everyone seems to focus on the 10 year yield versus the 2 year. The thought pattern I believe (and please correct me if I am wrong with any of this) is if banks borrow short and lend long then their margin will be squeezed and this will reflect on the economy.

My big problem with this is don't banks borrow the majority of their funds from either the overnight or the 3 month period? To me this makes looking at the 10 year yield versus 2 year yield a bit pointless. Wouldn't it be better to look at the curve from a 10 year versus 3 month point of view or am I looking at this all wrong?

Thanks in advance.

 

[CanOz]

Since the start of qe the yield curve is less of a prediction for recession than it was in the past.

 

[Trading Athlete]

Wouldn't it be better to look at the curve from a 10 year versus 3 month point of view or am I looking at this all wrong?

That's what I do.

Google "Dynamic Yield Curve" and click on the first link if you want to compare the slope of the yield curve on the two.

Canoz, what makes you say that?

 

[Bob111]

Thanks for that Trading Athlete. I think looking at it that way makes more sense.

Canoz, I'm guessing you are saying that the money supply restriction from the QE unwinding plays with the yield but don't banks still have to borrow against those interest rates so yield curve would still be as relevant as it was before QE?

 

[CanOz]

In some eyes, less relevant than before....
https://www.forbes.com/sites/simonconstable/2018/07/25/did-the-fed-break-the-yield-curve-indicator/

 

[Bob111]

Definitely something to keep in mind Canoz.