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smiley
Fission
Joined: Apr 16, 2004
Posts: 2144
Location: Europe
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 Posted: Thu Feb 02, 2006 3:38 pm Post subject: anyone watching the yield curve? |
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Has anyone been paying attention to the yield curve lately?
http://money.cnn.com/markets/bondcenter/?
First of all the thing is looking like a rollercoser with the 2 yr higher than the 5 and 10 yr.
But the yields have also been rising very fast in the past few weeks. It is about the biggest move that I have seen in the past years.
I'm surprised about the utter lack on media attention that this is getting. It seems to me like a very significant movement.
Anyone has any thoughts on where this might be heading in the short to medium term and why? |
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strider3700
Fission
Joined: Apr 17, 2005
Posts: 2752
Location: Vancouver Island
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| Posted: Thu Feb 02, 2006 4:28 pm Post subject: Re: anyone watching the yield curve? |
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how long has the yield curve been inverted? I saw it invert a few months ago but though that it has corrected.
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shame on us, doomed from the start
god have mercy on our dirty little hearts |
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LadyRuby
Light Sweet Crude
Joined: Jun 13, 2005
Posts: 1206
Location: Western US
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| Posted: Thu Feb 02, 2006 4:42 pm Post subject: Re: anyone watching the yield curve? |
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| I wish I knew what this meant in terms of protecting investments. CAn inflation-protected bond funds do okay in this situation? |
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smiley
Fission
Joined: Apr 16, 2004
Posts: 2144
Location: Europe
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| Posted: Thu Feb 02, 2006 4:56 pm Post subject: Re: anyone watching the yield curve? |
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| Quote: | | how long has the yield curve been inverted? I saw it invert a few months ago but though that it has corrected. |
It didn't correct. The media just lost interest. |
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LadyRuby
Light Sweet Crude
Joined: Jun 13, 2005
Posts: 1206
Location: Western US
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| Posted: Thu Feb 02, 2006 5:00 pm Post subject: Re: anyone watching the yield curve? |
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I thought the yield curve was pretty much flat (other than that one time a month ago), but I think the inverted thing may be new (today or yesterday). I can't believe I'm actually watching and caring about something called an inverted yield curve... what PO will do to a person.
Yahoo finance bonds
| Quote: | | The curve remained in an inverted pose throughout & closed at the deepest inversion since 2000. |
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strider3700
Fission
Joined: Apr 17, 2005
Posts: 2752
Location: Vancouver Island
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| Posted: Thu Feb 02, 2006 5:14 pm Post subject: Re: anyone watching the yield curve? |
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inverted yield curve in and of itself doesn't mean much. It's generally viewed as an indicator of coming recession though. How that will affect your bonds I don't know.
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shame on us, doomed from the start
god have mercy on our dirty little hearts |
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Seadragon
Heavy Crude
Joined: Oct 06, 2005
Posts: 190
Location: South Texas
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| Posted: Thu Feb 02, 2006 9:39 pm Post subject: Re: anyone watching the yield curve? |
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bad time to hold intermediate and long duration bonds, is what it's telling us...
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Exporting oil is an act of treason"-- Heitor Manoel Pereira, president of AEPET in Brazil, January 06, 2006
come see me sometime... http://www.sonofchaos.blogspot.com/ |
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MrBill
Expert
Joined: Sep 15, 2005
Posts: 5650
Location: Eurasia
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| Posted: Fri Feb 03, 2006 4:29 am Post subject: Re: anyone watching the yield curve? |
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Fed Funds 4.50% going to 4.75%
One year LIBOR 5.00%
UST 2yr 4.566%
UST 10yr 4.547%
UST 30yr 4.683%
Tells me that the market is concerned about inflation today, but quite sanguine about inflationary prospects in the medium to long-term. Demand for the 30 year bond may reflect continued disappointment in equity returns and life insurance companies are choosing instead to match their long term assets & liabilities via the long bond.
There is a general uneasiness amoung policy makers that the market may be discounting future risks too much and that global over liquidity is artificially compressing yields. I am not sure. I certainly do not like to take the dollar risk and the inflation risk on the long bond at these types of miserly yields. I would definately prefer to stay in the short end of the curve via a money market fund or look to rotate into defensive stocks that may outperform if the economy slows down.
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The organized state is a wonderful invention whereby everyone can live at someone else's expense. |
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Doly
Expert
Joined: Dec 03, 2004
Posts: 4041
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| Posted: Fri Feb 03, 2006 4:40 am Post subject: Re: anyone watching the yield curve? |
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| What is a money market fund? |
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MrBill
Expert
Joined: Sep 15, 2005
Posts: 5650
Location: Eurasia
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| Posted: Fri Feb 03, 2006 7:42 am Post subject: Re: anyone watching the yield curve? |
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| Doly wrote: | | What is a money market fund? |
Just a fancy name for a pool of money that is invested in a variety of short term interest bearing securities with a maturity of less than one year. Rather than the individual investor looking for diversity, they invest in a fund with other private investors and then the fund manager places the pool of funds into various instruments to vary duration and reduce concentration and credit risk. They are very safe. They also pay low yields in general and especially now in a low inflation, low interest rate environment. However, if you expect inflation and interest rates to pick up in the future, they are an excellent place to park funds now.
Here is one link you may find interesting.
Look for low-cost funds
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The organized state is a wonderful invention whereby everyone can live at someone else's expense. |
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LadyRuby
Light Sweet Crude
Joined: Jun 13, 2005
Posts: 1206
Location: Western US
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| Posted: Fri Feb 03, 2006 6:16 pm Post subject: Re: anyone watching the yield curve? |
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Thirst for US long bonds heralds steeper inversion
| Quote: | A sudden rush for 30-year bonds that hoisted up the entire Treasury market on Friday bodes well for next week's sale of $14 billion in the revived maturity -- but also hints at a deeper inversion of the yield curve.
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"We now have a meaningful yield curve inversion," said Richard Gilhooly, fixed-income market strategist at BNP Paribas. |
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rockdoc123
Light Sweet Crude
Joined: May 16, 2005
Posts: 1708
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| Posted: Fri Feb 03, 2006 8:34 pm Post subject: Re: anyone watching the yield curve? |
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MrBill
definitely out of my field of expertise but doesn't the yield curve signal impressions the investment houses have about interest rates short term and long term? |
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LadyRuby
Light Sweet Crude
Joined: Jun 13, 2005
Posts: 1206
Location: Western US
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| Posted: Sat Feb 04, 2006 1:09 pm Post subject: Re: anyone watching the yield curve? |
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No, inverted yield curve doesn't mean anything THIS time. Hmmm... isn't what they said last time before the recession??
June 2000
| Quote: | | In the old days, an inverted Treasury yield curve -- where the interest rate on long-term government bonds is lower than that on short-term bonds -- was a predictor that economic tightening was coming to an end and that Fed rates, and then bond rates, would drop in the future. Nowadays, because the government is buying back long-term bonds, the inverted yield curve merely reflects scarcity of 30-year Treasury bonds. |
What they said in 2000 | Quote: | | "We all remember how the market totally discounted the inverted yield curve in 2000, saying it was primarily due to technicals such as the budget surplus, buybacks and the disappearance of the Treasury market," said Gerald Lucas, chief treasury strategist at Banc of America Securities. The recession began a year later. |
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MrBill
Expert
Joined: Sep 15, 2005
Posts: 5650
Location: Eurasia
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| Posted: Mon Feb 06, 2006 3:37 am Post subject: Re: anyone watching the yield curve? |
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| rockdoc123 wrote: | MrBill
definitely out of my field of expertise but doesn't the yield curve signal impressions the investment houses have about interest rates short term and long term? |
| Quote: | Tells me that the market is concerned about inflation today, but quite sanguine about inflationary prospects in the medium to long-term. Demand for the 30 year bond may reflect continued disappointment in equity returns and life insurance companies are choosing instead to match their long term assets & liabilities via the long bond.
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Yes, higher interest rates today as the LIBOR futures predict short-term interest rates to go from FEB fends rate of 4.50% to at least 5.00% in one year. That is what short term instruments are telling us based on today's information. We may fall short of or exceed 5% in one year's time.
The inverted yeild curve indicates slower economic activity and the expectation of lower inflation and therefore interest rates in the future. Again based on all available information today. This is not a prediction of interest rates in 30-year's time.
Ruby, you are quite right, but please put it in perspective. All recessions are inevitably predicted by an inverted yield curve, but not inverted yield curves lead to a recession. That give rise to the old jab that 'economists have predicted 20 out of the last 10 recessions'. As always, they are a red flag. A red flag is something we watch very carefully. But when the underlying fundamentals change, we adjust our forecasts accordingly and focuss on the next event on the horizon.
Don't forget we have gone from interest rates of +18% to Fed funds of 1% and now we are testing the 5% area. Markets are now trying to decide whether we need 4% or 6%? What they are not saying is no matter what inflation is dead. Nor are they saying, no matter what, interest rates are going higher.
But I think it goes without saying that lower interest rates in the future which may signal a recession, if they stay low, at least below the economies growth potential, are stimulative and therefore eventually inflationary. Interest rates go up to fight inflation, go down when inflation goes down, reach a bottom, and if they lag inflation it is inflationary, if they lead inflation, then it may choke off growth (i.e. Japan).
So there is not one rate of inflation or indeed one yield curve that is better than another. If interest rates were very high, say 18% and the yield curve was inverted, it would be signalling the expectations of lower inflation in the future, and that would be a good thing.
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The organized state is a wonderful invention whereby everyone can live at someone else's expense. |
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MrBill
Expert
Joined: Sep 15, 2005
Posts: 5650
Location: Eurasia
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| Posted: Mon Feb 06, 2006 3:52 am Post subject: Re: anyone watching the yield curve? |
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For some reason I cannot access this story, but here are the headlines FYG.
| Quote: | Economics
Chile - Neutral: Inflation remains under control
Critical Events Calendar - Key events for investors
Ecuador - Negative: Inflation still on an upward trend
Ecuador - Watch: Borja says debt payments are safe
European Economics for Investors - France and Spain: Profit shares in the spotlight
Global Economics - DrKW Global Surprise Indicator rises
Global Economics - Monday's key events
Mexico - Watch: More grounds for Banxico caution
The Week Ahead - Waiting for direction
US data snapshot - Payrolls rise +193K, unemployment rate falls to 4.7% from 4.9%
US Economics for Investors - Forget about neutral, the Fed is now focused on resource utilization
US market closing comment - Yield curve inverts further as more Fed tightening is priced in
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The organized state is a wonderful invention whereby everyone can live at someone else's expense. |
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