While frontier assets are among the riskiest, they are still an extension of the safest.  According to the anonymous “currency specialist” in Steven Drobny’s Inside The House Of Money, “there is [thus] only one true macro trade and that’s the price of money.  Everything else is a function of the price of money. . . in actual practice, the price of money is not the Fed’s overnight rate but the interest rate that corporations use to evaluate investment opportunities.  I would argue that’s the eighteen month to two-year interest rate.”  While two-years have returned 2.1% YTD, tens have returned 7% and per John Riggs, an interest rate strategist with RBS, this flattening yield curve (the extra yield Treasury investors demand to hold 10-year notes over 2-year securities) may get even flatter in the near-term.  “With the Fed on hold, low inflation expectations and weak economic data, the front end has been anchored, which has led to the flattening,” Riggs told Bloomberg earlier today.  Last week the difference between yields on 10-year notes and TIPS, a gauge of trader expectations for consumer prices, narrowed to 184 points from the year’s high of 249 points back in January.  That said, the continuing downward trend of the TED spread, the difference between the three-month LIBOR and three-month T-bills and a proxy on the default risk of commercial lenders, indicates a continuing embrace of risk since June.  It seems one of these trends–flattening yield curve or narrowing TED–will ultimately have to give.

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