Matthew Boesler: Charts of the Year

Updated: (1) 01 January 2015 5:56 pm EST (New York Time)
(2) Commentary by John Lounsbury 01 January 2015 8:01 pm EST (New York Time)

Matt Boessler, who has written for Business Insider, Slate, Bloomberg and Benzinga, among others, has a great slide show of  20 charts which provide an excellent overview of finance and the macroeconomy as 2014 comes to an end.

Click through Read more >> to view two of the charts.

Interest rates for for 2015 and beyond are a really hot topic.  Below are two of Boesler’s charts with our comments.

The expectation reflected by the futures market from July 2009 to November 2010 was that a rate hike was never more than 8 months away.  We are still waiting for a rate hike, four years later.  The Fed Funds rate futures market may not be as reiable as once believed.

Following commentary added by John Lounsbury.

And are we now to relive the 2004-2008 experience again?  In  2006 and 2007 the 10-year risk premium was very low, touching negative values twice.  The lower the risk premium, the greater the expectation for higher short-term rates to approach the current 10-year rate.  When negative, the indication is that the average for short-term rates over the term to maturity will average more than the current bond coupon rate.

In 2006 and 2007 there were times when the expectation was that average for short-term rates from then to 2016 and 2017 would equal or even slightly exceed the then current 10-year rate, which averaged around 4.7% to 4.8% over the two years (2006-2007).

Right now the expectation indicated by the 10-year bond risk premium is that from now to the end of 2024 short-term rates will average around 2.4% over the ten years.

Imagine the unexplored economic territory we will live through if the 2004-2008 experience (and its follow-on) were to be repeated for 2014-2018 (and the subsequent follow-on).  The term ‘Great Depression’ might be insufficient.

See The Bond Risk Premium (Zach Pandl, Columbia Management, 2013).  There will be more discussion of bond risk premium in coming days in our premium content (sorry for the pun) – What We Read Today ‘behind the wall’.

We will post more (or all) of Boesler’s slides when authorized to do so.