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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

#71

Post by Godel_unicode »

mattdeboard wrote: post #67
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.

That's absolutely not the case The Yield Curve is now talked about on nightly news shows and it used to be only known about by economists and people in finance.

It's completely legitimate to question whether this increase in publicity for this one metric might be causing it to be less useful.

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

#72

Post by alkonaut »

It will be interesting to watch a recession that hits with zero or near zero (or even negative) central bank rates together with ongoing market disruptions such as the US/China trade conflict and Brexit. By “interesting” I mean terrifying.

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

#73

Post by andreilys »

wil421 wrote: post #23
jermaustin1 wrote: post #12

Earlier quoted context omitted.

I'm 40% in cash, 50% in S&P and 10% in small-cap. The last few months, all of my contributions have been going into cash, so that when the fall happens, I can hopefully scoop up a deal.

Let’s talk in 10 years and see if your cash will beat my S&P allocation.

Well if this was Nov 1999 (one year before the crash), S&P 500 was at $1.4k, so it would've taken you 14 years for your position to be in the green again

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

#74

Post by petre »

the-dude wrote: post #11

German economy shrinks : https://edition.cnn.com/2019/08/14/business/germany-economy-... UK economy shrinks : https://metro.co.uk/2019/08/09/pound-plummets-uk-economy-shr...

What would you expect? Brexit fears and almost every EU government banning ICE vehicles ten years from now. Good luck selling those Volkswagens. Add to that Trump's trade war with China. The EU is probably next.

https://www.reuters.com/article/us-usa-trade-europe-autos/tr...

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

#75

Post by JustSomeNobody »

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.

It will somehow be the other side that caused it by not allowing the sitting President to push through his agenda.

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

#76

Post by mywittyname »

Godel_unicode wrote: post #71
mattdeboard wrote: post #67

Earlier quoted context omitted.

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

That's absolutely not the case The Yield Curve is now talked about on nightly news shows and it used to be only known about by economists and people in finance. It's completely legitimate to question whether this increase in publicity for this one metric might be causing it to be less useful.

Probably not. Normal people have little impact on the bond market, most of them accept market rates through some intermediary such as a bank or broker.

It's the professional investors & monetary policy makers who really matter here, as they are the ones performing economic analysis on what rates should be.

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

#77

Post by roenxi »

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.

Not knowing exactly how much you want explained; but...

The yield curve is inverting because buyers with serious money are buying medium-term cash instruments in defiance of naive valuation logic that the short-term cash instruments are more competitively priced.

This suggests that they see something in the near future, big enough that they are throwing the easily calculated "Net Present Value with usual assumptions" out the window when they make their purchasing decisions. Since bond buying and selling is usually done on a pure NPV basis this is a big deal and a good signal that it is time to avoid anything that might be risky until we find out what the big thing is.

Hence, buy government bonds as the single most conservative option. NPV might be partially irrelevant.

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

#78

Post by scott_s »

mattdeboard wrote: post #67
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.

Something can both be a historical pattern and popularized as something we pay attention to. There are also historical patterns that many people don't talk about frequently or pay attention to.

Aside from that, I'm not sure how you're so confident that there is no observer effect. Markets, particularly in the short term, are influenced by human perception and emotion. It is plausible to me that, in particular, the stock market could dip because everyone observes the yield curve inversion, gets nervous about a coming recession, and then moves money out of the market in fear of it. This could happen even if a recession does not, and I don't find it impossible that such a move could help contribute to an actual recession. Again, human perception is an enormous component of markets, and perception is influenced by emotion.

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

#79

Post by elicash »

Godel_unicode wrote: post #71
mattdeboard wrote: post #67

Earlier quoted context omitted.

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

That's absolutely not the case The Yield Curve is now talked about on nightly news shows and it used to be only known about by economists and people in finance. It's completely legitimate to question whether this increase in publicity for this one metric might be causing it to be less useful.

I just went and fact-checked myself via Google Trends.

It does seem like the term had similar amount of web search traffic in late-2005 across all categories, compared to now. I didn't expect that at all. However, "News Search" only goes back to January 2008, so it's difficult to tell if 2005 also had similar news coverage. But the graph since 2008 definitely shows a massive increase:

https://trends.google.com/trends/explore?date=all_2008&geo=U...

So I think I might be mostly wrong. (Of course, this wouldn't mean there's no observer effect... just that it would be at least partially baked-into our current understanding of how it works.)

Edit: Hm. This seems to change a lot depending on the specific term used. "Yield curve inversion" makes it sound like people only started searching for this term in the last few years, and not really back in 2005. But changing it to "Yield curve inverted" shows the 2005 spike again.

So now I'm just discounting Google Trends as a source, either way.

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

#80

Post by nguoi »

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…

You don't have a time machine. Economic indicators work every time - until they don't.

>Notice how even getting close to zero spread can sometimes be followed by a recession. But a negative spread always does.

Everything since the last recession is, on some timescale, followed by a recession. So, technically, you'll be correct. But so were the people saying this in each of the years since 2008. If you don't have an upper bound on this, it's unfalsifiable and, when taken as advice, can't be used for any concrete actions.

If investors were as certain as you, a recession would be happening now.

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