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Earlier quoted context omitted.
Yes. 1965. And then it bounced back and forth for the next 4-5 years before we finally had a recession in 1970. https://fred.stlouisfed.org/graph/?g=nn5r
> https://fred.stlouisfed.org/graph/?g=nn5r Note: this graph is for 10Y1Y, while the indicator generally talked about is 10Y3M.
I used this one because it had the longest history.
Earlier quoted context omitted.
Wouldn't the larger driver be a potential fall in house prices?
With the exception of the 2008 financial crisis, housing prices typically appreciate during times of recession, albeit more modestly. My guess is that this is primarily driven by falling mortgage rates. "The FHFA U.S. house price index rose by an average of 7.4 percent in the year prior to a recession and prices rose an average of 2.7 percent from the start of a recession to the end" [ https://www.cnbc.com/2018/12/11…
My guess is that it's a smaller market with less price sensitive buyers, based on who can afford to buy and who is therefore likely to sell during a recession (the late 00s recession being different because of the central role of the housing market collapse in that recession.)
I’m not convinced this is a recession signal, as much as it’s a reflection of the new normal for worldwide central banks. Put the 10 year in context: in Japan and Germany and other stable countries yields are negative. So you have to pay to lend those countries money, because the central banks are pushing yields negative. But in the US you can actually get a modest (but real) return on the ten year, so it’s quite pop…
Truly I have no idea what traders are thinking. And they could all be wrong.
All I know is that this is way more complicated than pattern recognition.
I’m not convinced this is a recession signal, as much as it’s a reflection of the new normal for worldwide central banks. Put the 10 year in context: in Japan and Germany and other stable countries yields are negative. So you have to pay to lend those countries money, because the central banks are pushing yields negative. But in the US you can actually get a modest (but real) return on the ten year, so it’s quite pop…
What does that environment mean for Joe Consumer and their 401k?
Earlier quoted context omitted.
While I'm not saying you're wrong (and I'm not pretending to know enough to fully understand all the forces at play here), the article ends with the following statement that I find interesting, in light of your comment: > Every time the yield curve inverts there is a theory about why it doesn’t matter. The stock market rallies that often follow inversions further allay fears that it really is different. In the end, i…
"almost always" Keep in mind this signal was only discovered in 1989. So we have a forward-looking success rate of three out of three recessions predicted within a year or two. 3/3 is great, of course, but it wasn't delivered on stone tablets from Mount Sinai. The strange thing about predictive economic indicators is they often stop being predictive once popularized. Why? For example, in 2000 and 2006/7 the Fed raise…
Earlier quoted context omitted.
Thanks for this. Question: is there any rational reason an investor would invest in a 10-year bond when they could get a better interest rate on a six month bond? It seems like an inversion would result in near-zero long-term bond purchases.
With a 10-year bond, the investor receives that interest rate over the whole 10 years. With a 6-month bond, the investor receives that interest rate only over these 6 months, and then has to find another bond to buy. If all available bonds then have a lower interest rate, the investor would have received more for the 10-year bond. (What might be confusing at first is that interest rates are usually "annualized", that…
Simple explanation of what this means. Here are current yields on Treasury Bonds (expressed as an annualized rate)[0]: 1 Mo - 2.47 2 Mo - 2.47 3 Mo - 2.46 6 Mo - 2.49 1 Yr - 2.41 2 Yr - 2.26 3 Yr - 2.19 5 Yr - 2.21 7 Yr - 2.32 10 Yr - 2.43 20 Yr - 2.68 30 Yr - 2.87 In normal times, rates are higher for longer terms. This makes sense: the longer I tie up my money, the higher interest rate I'm going to want. However, r…
Thanks for this. Question: is there any rational reason an investor would invest in a 10-year bond when they could get a better interest rate on a six month bond? It seems like an inversion would result in near-zero long-term bond purchases.
This could also be a bet that the economy is still yet to improve, as in times of good economy the coupon rate has historically dramatically increased. To extrapolate, if the investor expects the economy to peak in 5 years, he would be incentivized to allocate capital into short-term investments such as equities and short term bonds as to defer longer-term investing until those bond yields reach their peak.
If investors were putting more capital into short term bonds, wouldn't the yield of short term bonds drop, not rise?
Coincidentally, the Fed just announced that interest rates aren't expected to rise this year, so we should see a decrease in the yields of the 1-mo to 1-yr bonds.
https://www.marketwatch.com/story/an-inverted-yield-curve-is...
So, if you're a start-up in the U.S. and are worried about the yield curve, just move to Germany, where even though the yield curve is also now inverted there, the historic evidence shows no to weak prediction of a German recession due to an inverted German yield curve!
#possibleSpuriousCorrelationFromDataMining