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Yield Curves Invert in U.S., U.K

bloomberg.com

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Re: Yield Curves Invert in U.S., U.K

#61

Post by dragontamer »

whateveryou381 wrote: post #13
torstenvl wrote: post #5

Time to get more conservative with your investments. Just moved my retirement accounts from 100% in a 2050 lifecycle fund to 75% in a 2030 lifecycle fund and 25% in just government bonds. Not all investment vehicles have a "lifecycle" fund but its intent is to be appropriately conservative for a target date. As the date grows closer, the fund gets more conservative in order to lessen the risk of sudden swings right b…

Why does low or negative yield bonds mean that you are going to be ok with govt bonds? This is exactly the problem, where bonds are no longer providing interest payments. I agree that being more conservative is probably necessary, however I think other than specific investments and... burying your cash might be the "conservative" options. Bonds were those, and no longer are now.

> This is exactly the problem, where bonds are no longer providing interest payments.

If interest rates drop even more, the value of bonds go up.

Right now, a 1.68% 10-year bond looks like it sucks. But next year, a 1.68% 9-year bond will beat the pants off of a 1.3% 10-year.

You can sell a 1.68% 9-year bond for a lot more money when everyone else only has 1.3% 10-year bonds. If the 10-year drops to 1%, you'll make even more money. A falling interest rate market benefits those who buy bonds, especially if no one knows where the bottom is.

Re: Yield Curves Invert in U.S., U.K

#62

Post by whenchamenia »

odonnellryan wrote: post #7
ConceitedCode wrote: post #4

HN really seems to like these stories. Previous discussions: 8 months ago - https://news.ycombinator.com/item?id=18593407 4 months ago - https://news.ycombinator.com/item?id=19463225 4 months ago - https://news.ycombinator.com/item?id=19491763 8 days ago - https://news.ycombinator.com/item?id=20615403

This is news, since it is the 2-10 year.

You say election funny.

Re: Yield Curves Invert in U.S., U.K

#63

Post by Retric »

wil421 wrote: post #57
Retric wrote: post #39

Earlier quoted context omitted.

Depends on what you mean by timing the market. Several strategies like keeping a fixed ratio of stocks to bond are effectively timing the market. You pull money out of stocks when they go up, and put money into them when they go down. Personally, I am less interested in absolutely maximizing my returns as I am maximizing the likelihood of reaching a return threshold.

Timing the market is exactly what you said about saving cash. Changing your asset allocations based on age or other milestones is not timing the market in any way. It’s reducing risk if you are about to retire. Changing your asset allocation yearly or quarterly based on news is foolish. I’d call that timing too.

As I said a fixed asset ratio is timing the market. The expected returns for socks are higher than bonds, it’s rebalancing that makes fixed ratios a good idea.

As to changing asset ratios, it likely reduces maximum returns. But, wealth has diminishing marginal utility. I can save a little more to make up for a small loss in returns for a few years, it’s much harder to make up for a 50% market dip.

Re: Yield Curves Invert in U.S., U.K

#64

Post by dragontamer »

ConceitedCode wrote: post #4

HN really seems to like these stories. Previous discussions: 8 months ago - https://news.ycombinator.com/item?id=18593407 4 months ago - https://news.ycombinator.com/item?id=19463225 4 months ago - https://news.ycombinator.com/item?id=19491763 8 days ago - https://news.ycombinator.com/item?id=20615403

The 2-10 year is the "official" indicator. The other inversions were signs that the 2-10 year was going to invert.

The 2-10 year is the actual news. When the 3-month / 10-year starts to invert, its basically inevitable that the 2-10 year indicator will trip eventually.

The 2-10 year invert doesn't happen instantaneously. It slowly moves into place. Yeah, we could see the signs for months.

Re: Yield Curves Invert in U.S., U.K

#65

Post by Raidion »

apo wrote: post #33

Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking. When the yield between the 10-year and 2-year US treasury inverts, a recession is months away. This chart, showing the difference between the yield (or spread), shows recessions in grey: https://journal.firsttuesday.us/using-the-yield-spread-to-fo... Notice how…

Also worth noting that if you go long, and there is a stimulus required, you may be in trouble as rates are low enough that you can lose money to inflation. No free lunch.

Re: Yield Curves Invert in U.S., U.K

#66

Post by Gpetrium »

apo wrote: post #33

Key recession indicator is flashing red. Unlike the stock market, which is both backward- and forward-looking, the bond market is myopically forward-looking. When the yield between the 10-year and 2-year US treasury inverts, a recession is months away. This chart, showing the difference between the yield (or spread), shows recessions in grey: https://journal.firsttuesday.us/using-the-yield-spread-to-fo... Notice how…

Those are some great points you have raised, I just want to add:

When actors are aware of the risks and exposures, they can sometimes inadvertently move the goal post further into the future due to their actions. In this case, the movements made by Central Banks and others may have led to the longest continuous economic growth in US history.

I would argue that the government's decision to delay the $150b tarifs was in part to delay the upcoming recession to help support retail & manufacturing numbers in the end of year sales.

I agree there is an inevitable recession, it is now a matter of how low it will get, how quick it can bounce back, its ramifications to the world, how it may impact your life and the strategy you intend to have to hedge the risks.

Re: Yield Curves Invert in U.S., U.K

#67

Post by mattdeboard »

elicash wrote: post #50

Question: While I'm sure economists have been studying this effect for decades, or maybe even way longer for all I know, it seems like this metric has been popularized as the key thing everyone looks at just in the last decade -- after the last recession that we had. Given the popularization, any chance of an increased observer effect? In either direction, I mean, positive or negative.

no. also there is no "popularization." it's just a historical pattern.

Re: Yield Curves Invert in U.S., U.K

#70

Post by techntoke »

voidfunc wrote: post #45

I don't want the economy to tank anymore than the next guy but if it blows up before the 2020 elections and kills President Trump's chance of re-election that would be a fantastic silver lining.

I'm calling it now, but you won't actually see a recession until after he leaves office. The rich and powerful control the market and it has no actual real indicator to the effects a majority of people are seeing in their personal lives.
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