It has been a while since the last time we posted our global GDP weighted yield curve. While it has been months it might as well have been a day as nothing has really changed. After being inverted for all of 2007 and most of 2008 the yield curve flipped and became extremely positive as central banks worldwide lowered short term rates. You can see this very clearly in the chart below of the G-10 nations short and long term rates. In spite of Australia raising theirs, short term interest rates remain extremely low everywhere else.
G-10 Short and Long Term Interest Rates
Another way to look at interest rates and in fact the title of this post is by using the global GDP weighted yield curve. In the chart below you can see the global yield curve. While it has fluctuated it has essentially gone nowhere for the last eight months.
Global GDP Weighted Yield Curve
So whats The Macro Traders outlook? We think that things will remain more or less the same for most if not all of 2010. On the deflationary side banks have not started to lend, real estate is not going up anytime soon, debt deleveraging is in overdrive, unemployment is as bad as ever, etc. On the inflation side commodities are up, stocks are up, and bonds are up. At best we would call this a standstill. So while we could envision long term rates going higher on credit risk, yes we think that sovereign debt is full of credit risk, we think that short term rates will remain low for most if not all of 2010.
Disclaimer-The Macro Trader is long TLT