Inverted yield curve

[Knobby22]

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

 

[Dona Ferentes]

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%

 

[Dona Ferentes]

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%

 

[Dona Ferentes]

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.

 

[wayneL]

Check out the corporates too.

 

[Dona Ferentes]

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

 

[Dona Ferentes]

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%

 

[Dona Ferentes]

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?

 

[divs4ever]

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

 

[Dona Ferentes]

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%

 

[Dona Ferentes]

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%) .

 

[divs4ever]

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 '

 

[Dona Ferentes]

Inverted , persistent and elevated

• The yield on the US two-year bond is at 4.90 per cent,
• The five-year is at 4.32 per cent
• 10-year note was 8 basis points higher to 4.07 per cent
• and the yield on the 30-year bond at 4.02 per cent

And Australian 10 year bond is 3.86%, with Germany at 2.74%

 

[Dona Ferentes]

In New York , by Friday close:

The yield on the US 10-year note plunged 22 basis points to 3.68 per cent; the 30-year was also at 3.68 per cent. The two-year fell to 4.58 per cent.

Yields earlier in the week surged, whipsawing investors. Then the 2-year fell by more than 50 points in two days; last times this happened were in 2001 and 2008.

Having a couple of banks in California go under; Silicon Valley Bank collapsed after failing to recapitalise, while Silverbank Capital was liquidating its banking arm, didn't help.

Both banks were in trouble for one major reason – over reliance in one area of business – Silvergate, with its lending and dealing with crypto companies; SVB, lending money to Silicon Valley start-ups.

 

[Dona Ferentes]

With the current ructions from Silicon Valley Bank collapse, plus a couple of others going under, the hawkishness has dissipated but inversion continues. Talk of recession continues.

The yield on the US 10-year bond plunged 16 basis points to 3.54 per cent; it earlier fell below 3.50 per cent. The two-year yield fell to 3.99 per cent, and this is drop of more than 100 basis points from a week ago.
........
Locally, the yield on 10-year Australian bonds is down 17 basis points to 3.36 per cent, with the 2-year bond yield down 27 basis points to 3.11 per cent, and the 1-year bond falling 26 basis points to 3.27 per cent.

On Monday night in Australia the 10-year yield briefly dipped below the 1-year yield to invert the yield curve on some measures.

 

[Dona Ferentes]

Inverted , persistent and elevated

... and accelerating
.

In the US the 2-year treasury bond yield topped 5 per cent this morning, with US 10-year treasuries offering 4.03 per cent and topping 4 per cent for the first time since March.

In Australia 1-year government bond yields have added 9 basis points to 4.49 per cent and Australian 10-year bond yields added 10 basis points to 4.22 per cent.

...A bond market sell-off accelerated overnight and this morning in the US and Australia as yields jumped due to investors lifting expectations for more interest rate increases.

not good for sharemarkets.

 

[Dona Ferentes]

Are we there yet ?

In july 2023, US 10-year Treasury rates jumped 25 basis points to 4.05 per cent in the past month at a time when the two-year return eased 2 basis points to 4.76 per cent.

In Australia, 10-year yields rose 12 basis points to 4.06 per cent and the two-year rate dropped 26 basis points to 3.82 per cent.

 

[Dona Ferentes]

gee whizzikins. Something's going to give. (Not there yet)


In the U.S., ten- and 30-year bond yields rose to the highest levels since October. Thirty year Treasuries rose 0.07 per cent to 4.42 per cent, the highest level since 2011 .

The benchmark US 10-yield Treasury yield rose nearly 0.08 per cent to 4.33 per cent. While that only takes the 10-year back to October 2022 levels, it’s worth noting that equity markets were 20 per cent lower then than they are now.

The two-year note’s yield, which is more sensitive to changes in the Fed’s policy rate, is around 4.98 per cent. It topped 5 per cent on Tuesday for the first time since July, when it peaked near 5.12 per cent.

...German ( now 2.70% ) and British 10-year bonds rose to 15- and 12-year highs respectively.

 

[Dona Ferentes]

• USA.. 2-year: 5.14%, 10-year: 4.49%
• Aust.. 2-year: 3.98%, 10-year: 4.30%
• Germany .. 10-year: 2.73%

cruelling it. and US mortgages, the fixed rate 30 year ones, are set at 7.19 per cent on average, been above 7 for six weeks

and stocks ?

 

[Dona Ferentes]

prolonged inversion. ... and a powerful disincentive for equities.