the stagflation paradox. higher real rates + steepen yield curve
hi there, dear fellow.
we've recently stumbled upon this chart, in the quest for a leading gauge for the dxy.
this chart depicts a paradox.
in white, US10Y-USIRYY; in orange, US10Y-US02Y.
if you remember our previous idea, namely on the DXY and the yield curve spread (US10Y-US02Y), we've pointed out back then that a steepening of the yield curve would be bearish for the DXY.
well, now we just compared it with our gauge for the real rates, namely US10Y-USIRYY.
what happens is, as it itself is on an extreme low in the last 20y+ (i haven't checked it beyond that, and it doesn't matter), it's likely to eventually revert to the mean. by the way, that's where the fed efforts are pointing to.
that on itself is DXY bullish, untill and unless other CBs beat the fed in hawkishness, which is not the case by now.
the recent tandem between both curves (since feb/21), suggests they're going up together, when and if.
as for the orange curve, that should be dollar (DXY) bearish; as for the white on, bullish.
who wins?
the white one, for as higher real rates make more sense to be dollar bullish than it makes to be dollar bearish under a steepened yield curve.
why? world wide higher inflation.
in short, literally, DXY has a long way to go. our estimate is 2y+ of pain for stocks and cryptos, for as high and higher DXY is risk off for SPX and BTC.
thank you.
we've recently stumbled upon this chart, in the quest for a leading gauge for the dxy.
this chart depicts a paradox.
in white, US10Y-USIRYY; in orange, US10Y-US02Y.
if you remember our previous idea, namely on the DXY and the yield curve spread (US10Y-US02Y), we've pointed out back then that a steepening of the yield curve would be bearish for the DXY.
well, now we just compared it with our gauge for the real rates, namely US10Y-USIRYY.
what happens is, as it itself is on an extreme low in the last 20y+ (i haven't checked it beyond that, and it doesn't matter), it's likely to eventually revert to the mean. by the way, that's where the fed efforts are pointing to.
that on itself is DXY bullish, untill and unless other CBs beat the fed in hawkishness, which is not the case by now.
the recent tandem between both curves (since feb/21), suggests they're going up together, when and if.
as for the orange curve, that should be dollar (DXY) bearish; as for the white on, bullish.
who wins?
the white one, for as higher real rates make more sense to be dollar bullish than it makes to be dollar bearish under a steepened yield curve.
why? world wide higher inflation.
in short, literally, DXY has a long way to go. our estimate is 2y+ of pain for stocks and cryptos, for as high and higher DXY is risk off for SPX and BTC.
thank you.
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