The short-end of the US curve reflects what the Fed has done in terms of hiking rates. But, the long end of the US Curve (10-30) is being driven by very different forces. It has flattened because of interest rate differentials between the ZIRP rest of world and the rate normalising US, but also on the fact external investors effectively drive US rates because they are the forced buyers! Ongoing QE distortions in Europe and Japan are still driving close to Zero domestic interest rates – forcing investors offshore. Global demand for duration partially explains why the US 10-30 curve appears to have flattened.Using sandbox terminology we can get at the regulation effect right away. The regulations specify that long term liabilities kind of match to long term assets. They mean that regulated banks have to have a known bound on matching error, we are at bit error again. The idea is to keep a little more congestion in the flow from in to out, and during volatile time the amount of short term borrowing is limited.
Europe has long term pension problems, as does the Swamp. All of the long term liabilities denominated in the regulated tax currency. Then dollar, as the monopoly reserve currency, has to be safe, its rate will be fixed low and that is a big problem. The problem being that Congress runs a very fixed inventory cycle with large discrete jumps at the reguant moments.
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