arigolden
Short

US Treasury 5s30s and 10s30s Curve - Flat Curve Predictions?

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The current trajectory of the flattening in the US Treasury 5s30s curve (30y yield minus 5y yield) and the 10s30s curve (30y yield minus 10y yield) illustrates a potential for the following:

1) A flat curve by July 2018 if the flattening trajectory continues (green lines);

2)A flat curve by Nov 2018 if we plot the trajectory from the recent steepening of the curve (red lines).
Comment: The yield curve continues to collapse...

Also, Libor-OIS is still wide. One can argue Libor-OIS is structural in nature largely due to repatriation, BEAT tax and Tbill supply which can be attributed to Q1 and maybe Q2. Hence markets haven't really reacted and while L-OIS has gone wider, XCCY basis have tightened (JPYUSD, EURUSD and CADUSD).

If however, Libor-OIS continues to stay wide after Q2 then I predict the market will likely begin to see problems as the cost of funding trillions of dollars of products tied to Libor goes higher - a shift from a structurally driven increase in Libor-OIS to a credit/liquidity driven problem, the latter is going to be a big problem...
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