Curve, inflation plays flying
The currency and bond markets are getting the message loud and clear, with breakouts, breakdowns, and crazy activity visible all over the place. A sampling:
* Forget the yen and the euro. Look at the Korean won, the Indonesian rupiah, the Indian rupee, or the Philippine peso. They're all breaking out against the buck. You can see the same thing happening in South America, with the Brazilian real and Chilean peso about to blow the doors off the dollar.
* Back-month Eurodollar contracts are flying. December 2010 EDs up 9 ticks to 98.78 at last check, for instance. That means Fed tightening is being priced OUT of the market.
* The yield on the 2-year Treasury Note was recently down 7 basis points to 0.95. Meanwhile, the yield on the 30-year Treasury Bond was recently UP about a bp to 4.69%. Result: The 2s-to-30s spread just hit 373.8 basis points, the highest in the history of my data, which goes back to 1980.
* And inflation concerns? Well, the 10-year TIPS spread has jumped to 246.5 bps. That's the highest going all the way back to July 2008.
What's the umistakably clear message from the capital markets: 'Fed -- wake up! Start hiking rates." But as I noted, they won't ... until it's too late.