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            The Peter Lynch of Bonds?
            May 16, 1994
            Into the E-byss
            August 25, 2000

            Extra! Long Yields Peak

            February 25, 2000
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            Extra! Long Yields Peak

            Yield Curve Dynamics Said Responsible

            Newport Beach, Feb. 3 – Long-term Treasury yields have peaked due to a rather complex set of “yield curve” dynamics which may “invert” standard curve relationships for years to come. During the space of a few trading days in late January, interest rates for long-term Treasuries dropped over 30 basis points, while yields on shorter maturity T notes were rising. This inversion, while typical of late business cycle interest rate behavior brought about by Federal Reserve tightening of monetary policy, had additional dynamics behind it this time around.

            Granted, with inflation accelerating and the U.S. economy experiencing 5%+ annualized growth rates, the market’s expectation of future Fed behavior played a part in the sudden inversion. Instead of two future hikes, continued strong growth suggested there may be additional ones beyond that. Short-term Treasuries therefore rose in yield to reflect that possibility. But the dramatic drop in long-term Treasury rates was almost inexplicable in the face of poor inflation news and the resultant rise in short-term rates.

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