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Sat Mar 23, 2019, 08:34 AM

The Yield Curve Is Inverted! Remind Me Why I Care: QuickTake

https://www.washingtonpost.com/business/the-yield-curve-is-inverted-remind-me-why-i-care-quicktake/2019/03/22/46dccb9e-4cd1-11e9-8cfc-2c5d0999c21e_story.html?utm_term=.4f1f406d7165

If you’re wondering what a yield curve is and why there’s so much fretting in the U.S. over it flattening -- and parts of it even inverting -- you’re not alone. Late last year, Google searches for “yield curve inversion” shot up to their highest level ever. Here’s what the fuss is about.

1. What’s a yield curve?

It’s a way to show the difference in the compensation investors are getting for choosing to buy shorter- or longer-term debt. Most of the time, they demand more for locking away their money for longer periods, with the greater uncertainty that brings. So yield curves usually slope upward.

2. What are flat and inverted yield curves?

A yield curve goes flat when the premium, or spread, for longer-term bonds drops to zero -- when, for example, the rate on 30-year bonds is no different than the rate on two-year notes. If the spread turns negative, the curve is considered “inverted.”

3. Why does it matter?



The yield curve has historically reflected the market’s sense of the economy, particularly about inflation. Investors who think inflation will increase will demand higher yields to offset its effect. Because inflation usually comes from strong economic growth, a sharply upward-sloping yield curve generally means that investors have rosy expectations. An inverted yield curve, by contrast, has been a reliable indicator of impending economic slumps, like the one that started about 11 years ago. In particular, the spread between three-month bills and 10-year Treasuries has inverted before each of the past seven recessions.


Trump is set to make America great again the same way W Bush and Reagan did, with recessions to follow soon. I hope retirement age DUers have some money in safe conservative investments like money market because by the time they announce the Trump recession, it will be too late.

Obama's bull market will be shot in the head and served up well done with ketchup.

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Response to IronLionZion (Original post)

Sat Mar 23, 2019, 08:57 AM

1. Thanks for explaining that so clearly

This isn't the first time it has inverted in the last 3 months.

"On December 3, 2018, the Treasury yield curve inverted for the first time since the recession. The yield on the five-year note was 2.83. That's slightly lower than the yield of 2.84 on the three-year note. In this case, you want to look at the spread between the 3-year and 5-year notes. It was -0.01 points." tps://www.thebalance.com/inverted-yield-curve-3305856

As soon as Trump, the US oligarchs, the GOP and Putin took tax money that was circulating in our economy and gave it for free to people who were already hording vast amounts of wealth, you knew you were going to see a crash. Ah the wobbly insecurity of capitalism.

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Response to Farmer-Rick (Reply #1)

Sat Mar 23, 2019, 09:10 AM

4. Read my reply I have the reason they are lower. It is not bad news for most of us.

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Response to IronLionZion (Original post)

Sat Mar 23, 2019, 09:05 AM

2. Old money HATES inflation; it makes their old money less valuable

Perhaps they feel they have finally accomplished their goal.

Slow increases in inflation with corresponding wage growth is good for workers.

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Response to IronLionZion (Original post)

Sat Mar 23, 2019, 09:08 AM

3. Mortgage interest rates trend the same as the 10 yr or long bond. The lower the rate of return on

Last edited Sat Mar 23, 2019, 09:55 AM - Edit history (2)

the bonds the lower mortgage interest rates are. Most of us are home buyers not long term bond investors. What is good for investors is not so good for us little people.

We don't follow the long bond (I do) so it doesn't matter too much. We have always been told that markets should be important to us when they have little to do with our day to day lives. We don't have the economic luxury of investing for the future. We live paycheck to paycheck.

When I was buying my home in 2015 I prayed the long bond would fall. I got a good rate on my mortgage (2.75%). That meant more money in my pocket. When I did a cash out refinance the long bond was down again and I kept that rate.

So I think you should not try to get us worried about long term investors. Let's worry about health care and college tuition costs.


I get the below mortgage up date every day.

by: Matthew Graham
Mortgage Rates Down 0.25% This Week

Mar 22 2019, 5:30PM

At the end of last week, the average top-tier 30yr fixed mortgage rate quote was 4.375%. As of today, the exact same scenario would be at 4.125%--a quarter of a percentage point lower. That's an uncommonly big move for a single week, but it's one we've been tracking eagerly in recent days.

snip

In the middle of the night (in the US, anyway), economic data for Europe was released that showed a serious slowdown in German and French manufacturing. The Fed has repeatedly cited European growth concerns as a reason for its aggressive policy changes, so the news was all the more meaningful. European bonds tanked by the time US markets opened ("tanked" in this context refers to rates moving lower). Early in the domestic trading session, US economic data was similarly weak, thus reinforcing another warning from the Fed about European weakness spilling over to the US.

With that, bond yields fell rapidly at home and abroad--to the point where there was a bit of a frenzied rush to buy (when traders buy bonds, rates move lower).

http://www.mortgagenewsdaily.com/consumer_rates/905433.aspx

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Response to wasupaloopa (Reply #3)

Sat Mar 23, 2019, 09:26 AM

5. Thanks for that info.

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Response to wasupaloopa (Reply #3)

Sun Mar 24, 2019, 01:52 AM

8. The ten year Treasury is not considered a "Long bond"

and in fact, the Treasury doesn't even call ten year paper a Bond. They call it a "Note", though technically it is a bond, as are all the fixed rate securities offered via auction and through their Treasury Direct website.

The "Long" bond issued by the US Treasury is the 30 Year.

However, the ten year does have the distinction of being the worldwide standard for the risk free rate of return.

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Response to IronLionZion (Original post)

Sat Mar 23, 2019, 10:29 AM

6. When the American economy is working for the benefit of businesses

and individuals, the yield spread is greater than zero. Banks are making money by borrowing money from the Fed loaning that money at higher interest rates to businesses and people. The threat of inflation and, more so, increased inflation cause the Fed to increase its interest rates for loans to banks. That reduces the yield spread can invert the yield spread (in the chart, note the decrease beginning in 2014), and it can continue until it becomes zero (in the chart, note that at 2019, it becomes zero). At the zero point and below, banks are faced with the choice of borrowing money from the Fed at an interest rate higher than they are able to loan that money to their customers. So, to stay solvent, they must stop making loans, and they lose that income stream. When banks can't make a profit, businesses dependent on loans can't either.

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Response to IronLionZion (Original post)

Sun Mar 24, 2019, 01:24 AM

7. It just means long term investors believe workers salaries will not go

up as the workers fight inflation and compete with automation for jobs. It used to be that inflation marked a booming economy. That was back when workers were part of the booms.

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Response to IronLionZion (Original post)

Sun Mar 24, 2019, 12:20 PM

9. Bad news for public projects.

The inverted yield curve makes it much more difficult to price and sell the bonds issued for public infrastructure and programs, too. It’s not just a problem for investors and old money. The bond markets are everybody’s problem.

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Response to IronLionZion (Original post)

Sun Mar 24, 2019, 12:29 PM

10. QE and negative interest rates are coming.

Probably about 1 year out.

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