# Inverted yield curve



## jj1929 (20 February 2008)

In the US, inverted yield curve, if any, can predict recession.  
Now can the inverted yield curves in Australia and UK predict anything?

http://www.bloomberg.com/markets/rates/australia.html
http://www.bloomberg.com/markets/rates/uk.html


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## doctorj (20 February 2008)

... and if so, what do you make of the US yield curve?

And the TED spread seems to be coming back a bit?


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## jj1929 (20 February 2008)

Based on TED, I think it is safe to buy when it is below 0.5 and sell when it is above 1.


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## doctorj (20 February 2008)

Where'd you get that TED chart?


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## jj1929 (21 February 2008)

I got the data from the following and used Excel to plot the data.
http://www.federalreserve.gov/releases/h15/data.htm


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## blaze87 (5 May 2008)

http://www.bloomberg.com/markets/rates/australia.html

Since inverted yield curve is a rather accurate predicter of future economic reccession for the US, will it also apply for AUS? 

currently AUS has a rather (negative) flat-invertish yield curve. What does ASFers thinks of this inverted yield curve? Can china-india save us from this inverted yield curve?

blaze


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## blaze87 (7 May 2008)

i was wondering if any more asfers have more opinion abt this inverted yield curve

blaze


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## Smurf1976 (7 May 2008)

I am seeing a few real life signs that the economy is slowing which fits with the inverted yield curve. "Quiet" is a term I'm hearing more of in response to the "how's business" type of question. That's just a few anecdotals however.

As for more theoretical points, if it works in the US (as it does) then I can't see why it wouldn't work reasonably well in Australia. It's always been my understanding that whilst not foolproof, it's a reasonably reliable indicator of forward conditons in any developed contry unless there's some unforeseen shock (eg bank goes bust, natural disaster, major oil discovery etc).


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## sptrawler (19 August 2019)

I wonder if this negative bond yield, is going to be the way the World 'washes away' all the quantitative easing money, that was printed?

https://www.abc.net.au/news/2019-08...urve-time-for-negative-yielding-debt/11425960


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## greggles (27 August 2019)

> *Insiders are selling stock like it's 2007*
> 
> New York (CNN Business) The leaders of Corporate America are cashing in their chips as doubts grow about the sustainability of the longest bull market in American history.
> 
> ...




https://www.cnn.com/2019/08/26/investing/stock-market-insider-selling/index.html

If CEOs and corporate insiders believe it's time to start taking money off the table, then it might be wise to give the idea some serious consideration.


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## Dona Ferentes (24 March 2022)

Here's Johnny.

Bond investors are increasingly worried the US is heading for recession, casting doubt on the Federal Reserve ability to bring about a soft landing as it marches towards faster and higher interest rates to rein in inflation.



> _The *US yield curve has inverted*, based on the 10-year and three- / five-year bond yields, where the longer dated bond now yields less than the shorter dated ones. Should the closely watched 2-year bond rate exceed the 10 year, that would qualify as a classic recessionary indicator        _




The three-year and 10-year *spread *has shrunk by about 61 basis points since the start of the year.

at 01 March:

2 -year yield : US 1.42% ; Australia 1.08%  
5 -year yield : US 1.71% ; Australia 1.82% 
10 year yield: US 1.83% ; Australia 2.13% ; Germany 0.13%  

and at end of trade, 23 March

2 -year yield : US 2.10% ; Australia 1.53% 
5 -year yield :* US 2.31*% ; Australia 2.47%  
10 year yield: *US 2.28*% ; Australia 2.77% ; Germany 0.46%  



> _Under normal circumstances, the yield curve is not inverted since debt with longer maturities typically carry higher interest rates than nearer-term ones. From an economic perspective, an inverted yield curve is a noteworthy and uncommon event because it suggests that the near-term is riskier than the long term._


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## divs4ever (24 March 2022)

now the confounding issue here   are 'massaged ' inflation ( CPI ) numbers   , extraordinary QE  and injected liquidity 

 i suggest many Western economies are already in 'recession '  with some already in a local depression ( and that is my theory on why the 2019 yield curve inversion signal SEEMED to be a miss .. and being distracted by a virus hysteria probably took some focus off the actual economy )

 but i will not be returning to bonds ( , bills  and notes ) for a fair while  , as all debt  relies on credibility ( trust ) and Cyprus basically broke that in me


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## Dona Ferentes (26 March 2022)

and two days later

2-year yield: US 2.28% ; Australia 1.55%
5-year yield: US *2.56%* ; Australia 2.49%
10-year yield: US* 2.48%* ; Australia 2.77% ; Germany 0.58%
Houston, you've got a problem.  Economists are saying they now expect the Fed to lift its key rate in *multiple 50-basis-point *increments.


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## dyna (26 March 2022)

This weekend's AFR says 20% of the stocks in the Russel 2,000 index are effectively "zombie " companies, unlikely to survive the Fed's  interest rate rises. Impossible for them to pay their debts.


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## divs4ever (26 March 2022)

Dona Ferentes said:


> Houston, you've got a problem. Economists are saying they now expect the Fed to lift its key rate in *multiple 50-basis-point *increments.



 well now the Fed is ( allegedly ) stopping buying them , Russia will not be buying them , and China is less likely to buy more ( some wonder if they will dump  what they have or just let them mature and not bother re-buying )


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## divs4ever (26 March 2022)

dyna said:


> This weekend's AFR says 20% of the stocks in the Russel 2,000 index are effectively "zombie " companies, unlikely to survive the Fed's  interest rate rises. Impossible for them to pay their debts.



sadly that might be a little conservative , especially when some used that acquired debt to buy-back shares ( not invest in future growth )


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## wayneL (26 March 2022)

So, mug traders sitting around in their underwear got the IR trend more right than central bankers and professional economists.

Or are they just liars and narrative builders so-as not the frighten the proles at the wrong time?

Not sure which myself.


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## divs4ever (27 March 2022)

considering  how some central bankers have over-used 'jaw-boning '  to steer the economy ( and sentiment )  and the usual trend in investing is to  rush to bonds in times of uncertainty  and economic stress  , so creating fear MIGHT be part of their sales strategy


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## Knobby22 (31 March 2022)

I saw on Alan Kohler the inversion now occurring at 2 years. Anyone got latest graph?

Short rise in interest rates short term followed by reducing rates. As I said months back, I can't see much of an interest rate rise occurring.

Supply shocks do not make high interest rates in the modern USA as ordinary workers cannot achieve wage rises due to almost total control of Capital over Labour in that country.

If ordinary people can't earn more then consumer items including food can't get higher prices without losing volume.

Higher costs won't translate to high inflation as in the world of the ordinary person they will just live on less. This causes a recession.


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## KevinBB (31 March 2022)

These are the latest figures on US and Australian interest rates, from Bloomberg.

The US 5 and 10 year are inverted, but not by much. All other relationships are normal. Source: this page





The Australian bond rates are normal. Source: this page





Its all media hype at the moment. There is no need to panic, just yet.

KH


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## Knobby22 (31 March 2022)

Weaker booms, longer busts in the economy. Australian wages will rise, we should avoid recession.


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## Dona Ferentes (2 April 2022)

Latest overnight numbers. The two's are there, as well

2-year yield: US 2.45% ; Australia 1.80%
5-year yield: US 2.56% ; Australia 2.62%
10-year yield: US 2.38% ; Australia 2.82% ; Germany 0.55%


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## Dona Ferentes (12 April 2022)

_Risk assets are falling in response to the jump in bond yields as markets continue to respond to a more hawkish Federal Reserve.

The US 10-year yield rose 6.9 basis points (bps) to hit 2.79 per cent, the highest in three years, weighing on the tech-heavy Nasdaq overnight which dropped 2.2 per cent.

Chicago Federal Reserve president Charles Evans almost cemented the probability of multiple 50bp interest rate rises, stating “perhaps it’s highly likely, even”. Evans added that he is open to getting to neutral by December which would require three 50bps moves and 25bp moves at the other meetings, according to NAB.

Back to back 50bps hikes in May and June are already 88 per cent priced into markets, while there is 220bps of tightening priced for the rest of 2022._

Bond yields higher, but/ and gone flat. Not sure what the 3 month is doing.

2-year yield: US 2.50% Australia 2.11%
5-year yield: US 2.79% Australia 2.74%
10-year yield: US 2.78% Australia 3.00% Germany 0.81%


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## Dona Ferentes (14 June 2022)

Flattery will get us nowhere.

Bond yields have soared, with the US two-year leaping 55.2 basis points since Thursday *to 3.36%*. The yield on the US 10-year is up 31.9 basis points in that time *to 3.36%*. 

Markets are now pricing in a 30 per cent chance of a jumbo 75 basis point rate rise by the Federal Reserve this week.


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## wayneL (14 June 2022)

Check out the corporates too.


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## Dona Ferentes (10 July 2022)

Similar to April, and also Jun. Persistent flat-lining.


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## Dona Ferentes (19 July 2022)

Dona Ferentes said:


> Similar to April, and also Jun. Persistent flat-lining.



Now USA has swung noticeably to negative. Australia probably behind the curve?

2-year yield: US 3.16% Australia 2.62%
5-year yield: US 3.07% Australia 3.17%
10year yield: US 2.96% Australia 3.43%


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## Dona Ferentes (1 August 2022)

two weeks later

2- year yield: US 2.88% Australia 2.39%
5- year yield: US 2.68% Australia 2.77%
10-year yield: US 2.65% Australia 3.05%
the USA still negative, Aussie curve is normal, but look, there is a distinct lowering of the longer-dated U.S and Australian bond markets? This is what has helped the July rally in stocks. Will it last?


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## divs4ever (2 August 2022)

i am betting it will all end it tears , but maybe not today  ( maybe  a year  or eighteen months down the track )

 remember they have to SELL those bonds  to somebody  ( and i bet Russia and China will NOT be interested )

 but keep a plan for it going anyway but sensible


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## Dona Ferentes (23 August 2022)

Things going the wrong way, as yields creeping up again (not good for markets) and the US curve stubbornly negative

2-year yield: US 3.34% ; Australia 2.94%
5-year yield: US 3.17% ; Australia 3.28%
10-year yield: US 3.02% ; Australia 3.51%


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## Dona Ferentes (22 September 2022)

This has been going on for quite a while now: *Yield inversion* continues as the latest _US 2-year bonds are as high as 4.05% while the 10-year bond yield is_ 3.53%.

With another 75 point raise in cash rate occurring overnight, Fed chairman Jerome Powell said while continuing rate increases will be needed, the pace of the increases will depend on incoming data and at some point the pace will slow.

Powell also said it appears that _commodity_ prices have peaked.

As for whether the Fed can effect a "_soft landing"_ for the US economy, Powell said that it is "_very challenging"_, adding that no one knows whether a *recession* will occur, or if to, how deep it will be.

That said, Powell said the chances of a soft landing are likely to diminish to the extent that monetary policy needs to be more restrictive or restrictive for longer.

A restrictive policy position is needed to meaningfully put downward pressure on inflation, he also said.

 (Australian Ten-years are 3.66%)_ ._


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## divs4ever (22 September 2022)

Dona Ferentes said:


> Powell also said it appears that _commodity_ prices have peaked.



peaked for whom ??

 those not buying in the US  ( but in US dollars ) might strongly disagree 

 ( but on the other had a possible tailwind for non-US producers )

i see food commodity prices climbing  , however  collapsing manufacturers ( and those merely shutting down for the Northern winter ) would appear to be a headwind for base metals 

 and energy prices might become a 'show of a lifetime '


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