Patience Here Will Pay Interest

This week's chart was of the 1-3 Year Treasury/20+ Year Treasury ETF Ratio (SHY/TLT). I was going to look at the 10-Year Yield, which is pushing to multi-month highs, but honestly, that would've been too easy to identify, and I have a reputation to maintain.

The reason this ratio and the 10-Year Yield look very similar in that the short end of the curve is basically at zero due to the Fed Funds Rate being kept between 0.00%-0.25%, so any real movement in this ratio is going to come from the 10-Year moving up or down.

Click on the chart to enlarge view.

And the 10-Year Yield will only move significantly in either direction if the market is adjusting its long-term growth and inflation expectations. Right now, they're moving higher...albeit marginally, but not down is progress given they are in a 40-year downtrend.

Regardless of whether you're looking at this chart, the chart of TIPS, the 10-2 Year Treasury Spread, or any other major interest-rate proxy, it's clear that this year has been a potential inflection point for growth and inflation expectations.

So as long as these constructive bases do not resolve to the downside, we want to be erring on the side of higher interest rates, despite the mixed action since August and slow progress.

We discuss the direction of Rates and growth/inflation expectations and how we're taking advantage of it in our Q4 Playbook which will be out for members this weekend!

As always, thanks for reading and please let us know if you have any questions!

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