That Tricky Yield Curve

摘要

Borrowing short and lending long must be the second most lucrative industry in America, right behind printing dollar bills. A banker borrows short when he issues a 30-day certificate of deposit. He lends long when he writes a multiyear auto loan. Thrifts, mortgage REITs, hedge funds, finance companies and the federally sponsored mortgage behemoths all engage in this ancient gambit. Why wouldn't they? Short-term interest rates remain well below long-term rates. But the gulf between the two is closing—and therein lies the trouble. A year ago the short-term borrowing rate was 1%; today it's 2.5%. A year ago the five-year Treasury yield was 3.12%; today it's 3.78%. A year ago, in other words, there were 2.12 percentage points of daylight between the cost of an overnight loan and the yield on a five-year investment; today there's only 1.28 percentage points. The less daylight, the less profitable are the banking business and allied financial trades. Following is a speculation on who is at risk, and why.