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Interest Rate Compression -- Not A Good Look

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There is something different happening with interest rates. I don't know exactly what it means, but I definitely don't like how it looks. On the chart below, notice how in 2004 shorter-duration rates began to rise to where in 2006 long- and short-duration rates were compressed at a relatively high level. Then, in 2007 as the financial crisis emerged, shorter-duration rates began to fall, and a more normal spread between rates began to return; although, longer-duration rates continued a long-term down trend that continued to compress rates from the top.

In 2016 short rates began to rise again, and they were compressed again by 2019, at which point all durations began to fall in unison. At this point there is only 1.08 percent difference between the shortest and longest rates. And all rates are in an accelerated decline, headed for zero. This is a different configuration than we have seen before, and I have to conclude that it is not different in a good way. We're quickly losing whatever cushion remains in the event the economy runs into more serious problems.



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Happy Charting! - Carl


Technical Analysis is a windsock, not a crystal ball.


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Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of DecisionPoint.com, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with StockCharts.com in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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