More on Treasuries

I have been burning some brain cells on where Treasuries are headed over the past few days, as my recent two posts attest to.

While I am generally thinking about the benchmark in particular, another way to think about the same question is to look at where the yield curve is headed. CBT bi-weekly expectations survey publishes 6-month T-bill and 5-year bond expectations. The difference between rate expectations of the two instruments 3 and 12 months down the road yields a simple expected yield curve:

Rather than the yield curve, we could simply where markets see rates heading (up or down) in the future by taking the difference between 12 and 3 month expectations for the policy rate as well as 6-month T-bills and 5-year bonds:

Here, you can think of the difference between the policy rate and market rate curves as a very crude measure of markets' expectations of the effectiveness of monetary policy. For example, if markets expect the policy rate to rise by 1% between 3 and 12 months ahead, and market rates only by 50bp, than they expect a less than one to one mapping from policy to market rates.

Note that this is one of the many imperfect substitute indicators I am using in the absence of better data. I can tell you, as someone who used to fill out these surveys, not to make too much of these expectations, especially the currency and rate forecasts. I wouldn't base my investment decisions on these indicators alone, but they are just to have around...