Treasury 2-10 year yield curve has inverted!

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squirm
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Re: Treasury 2-10 year yield curve has inverted!

Post by squirm » Wed Aug 14, 2019 1:09 pm

Since the market has only give parabolic since 2010, I would think there's a lot of air underneath, if a recession does unfold. I remember day after day off extreme selling in the 2000 bear and the 2009 bear.

ohai
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Re: Treasury 2-10 year yield curve has inverted!

Post by ohai » Wed Aug 14, 2019 1:17 pm

Janet Yellen said today she doesn't think it matters too much.

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corn18
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Re: Treasury 2-10 year yield curve has inverted!

Post by corn18 » Wed Aug 14, 2019 2:52 pm

J G Bankerton wrote:
Wed Aug 14, 2019 12:40 pm
unclescrooge wrote:
Wed Aug 14, 2019 11:47 am
J G Bankerton wrote:
Wed Aug 14, 2019 7:02 am
HawkeyePierce wrote:
Wed Aug 14, 2019 6:47 am
gotta say, I don’t think anything good comes from watching CNBC. :wink:
I have my reasons and it isn't about inverted yield curves.

This just in from Bank of Amearica.
The U.S. Treasury 2-10 year yield curve inverted and that means stocks are on ‘borrowed time,’ says BAML

This is not unlike the weather channel's joy when they get to report on a hurricane.
I watch CNBC because they have cute reporters. Fox Business is ugly. Bloomberg is ok.

Are you suggesting you watch CNBC for schadenfreude? :mrgreen:
I had to look that up, nien that is not the reason. I'm not at liberty to say why I watch.
Don't do something, just stand there!

kaeltor
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Re: Treasury 2-10 year yield curve has inverted!

Post by kaeltor » Wed Aug 14, 2019 3:00 pm

whodidntante wrote:
Wed Aug 14, 2019 7:10 am
Sorry, I already panicked when the 3 mo exceeded the 10 year. Is this double doom?

I didn't really panic.
At least you didn't do what I did -- I sold all and bought Tesla and Bitcoin.

Prospero
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Re: Treasury 2-10 year yield curve has inverted!

Post by Prospero » Wed Aug 14, 2019 3:31 pm

The same is happening in the UK.
https://www.bbc.co.uk/news/business-49346972

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Re: Treasury 2-10 year yield curve has inverted!

Post by PluckyDucky » Wed Aug 14, 2019 3:39 pm

Historically, high valuations (such as CAPE, q ratio) indicate lower future returns. Because the market usually goes up, that means a crash, not a long-term down trend.

10-2 yield curve hasn't closed negative, but it's almost there. It will start the clock.

Keep your eyes open!

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J G Bankerton
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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Wed Aug 14, 2019 3:48 pm

kaeltor wrote:
Wed Aug 14, 2019 3:00 pm
whodidntante wrote:
Wed Aug 14, 2019 7:10 am
Sorry, I already panicked when the 3 mo exceeded the 10 year. Is this double doom?

I didn't really panic.
At least you didn't do what I did -- I sold all and bought Tesla and Bitcoin.
Don't laugh, Bitcoin has become a serious store of value. It is giving gold a run for the money.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Vision » Wed Aug 14, 2019 4:32 pm

J G Bankerton wrote:
Wed Aug 14, 2019 3:48 pm
kaeltor wrote:
Wed Aug 14, 2019 3:00 pm
whodidntante wrote:
Wed Aug 14, 2019 7:10 am
Sorry, I already panicked when the 3 mo exceeded the 10 year. Is this double doom?

I didn't really panic.
At least you didn't do what I did -- I sold all and bought Tesla and Bitcoin.
Don't laugh, Bitcoin has become a serious store of value. It is giving gold a run for the money.
If recession hits people will be less likely to spend their money on Bitcoin.

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Re: Treasury 2-10 year yield curve has inverted!

Post by HawkeyePierce » Wed Aug 14, 2019 4:56 pm

J G Bankerton wrote:
Wed Aug 14, 2019 3:48 pm
kaeltor wrote:
Wed Aug 14, 2019 3:00 pm
whodidntante wrote:
Wed Aug 14, 2019 7:10 am
Sorry, I already panicked when the 3 mo exceeded the 10 year. Is this double doom?

I didn't really panic.
At least you didn't do what I did -- I sold all and bought Tesla and Bitcoin.
Don't laugh, Bitcoin has become a serious store of value. It is giving gold a run for the money.
If crypto is supposedly a safe asset in times of crisis for traditional assets, why did it fall yesterday by even more than the S&P? :idea:

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Re: Treasury 2-10 year yield curve has inverted!

Post by Sakura » Wed Aug 14, 2019 5:08 pm

The notion of associating Bitcoin and even gold with being a safe asset seems a bit questionable.

Gold lost something like 80% of its value from the days of the volcker fed in 81 to the year 2000. Bitcoin just tanked more than 50% in the past couple years. Can we really call something a safe asset with that kind of history?

What does seem similar is the cult following both have...the gold bugs and now the crypto bugs. The gold bugs being more likely to have an AARP card and the Bitcoin ones, an Instagram account.

The yield curve doesn't seem to me as potent an indicator. Everyone knows this, the media is running stories on it constantly. My entire life trading and now following buy/hold I've always believed that information is not knowledge much less power.

I mean, suppose for a minute you say it's definitely going to happen and a recession is coming. Fine, what can we do to act on this...go out of stocks completely? Buy bonds that have laughable yields? Short the market?

There are a few decent trades that I can see but they're just that and certainly not any sort of long term plan.

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J G Bankerton
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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Wed Aug 14, 2019 5:10 pm

HawkeyePierce wrote:
Wed Aug 14, 2019 4:56 pm
J G Bankerton wrote:
Wed Aug 14, 2019 3:48 pm
kaeltor wrote:
Wed Aug 14, 2019 3:00 pm
whodidntante wrote:
Wed Aug 14, 2019 7:10 am
Sorry, I already panicked when the 3 mo exceeded the 10 year. Is this double doom?

I didn't really panic.
At least you didn't do what I did -- I sold all and bought Tesla and Bitcoin.
Don't laugh, Bitcoin has become a serious store of value. It is giving gold a run for the money.
If crypto is supposedly a safe asset in times of crisis for traditional assets, why did it fall yesterday by even more than the S&P? :idea:
It was for the same reason stocks fall and rise 6% in one day; it was the algorithms, it is always the algorithms.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Northern Flicker » Wed Aug 14, 2019 5:22 pm

J G Bankerton wrote:
Wed Aug 14, 2019 5:40 am
On CNBC they are running a 2-10 year bond ticker. They have inverted for the first time since 2007. Some talkin heads say a recession is coming. The 10 year is where stock money goes during a recession was the reasoning.

The DOW dropped 150 points when the inversion happened. It appears many are not just standing there doing nothing.
We know what the market did. We don’t know why it did what it did. It is far more likely that both equity traders and bond traders were responding to the same new information, quite possibly the news that the German economy contracted in Q2. It is unlikely that equity traders said, “Gee, look at that bad news. Let’s wait and see what bond traders do before we decide how to react.”

I think the term “financial news” should be changed to “financial olds”, because by the time you read or hear it, that is what it is.

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J G Bankerton
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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Wed Aug 14, 2019 5:27 pm

Northern Flicker wrote:
Wed Aug 14, 2019 5:22 pm
J G Bankerton wrote:
Wed Aug 14, 2019 5:40 am
On CNBC they are running a 2-10 year bond ticker. They have inverted for the first time since 2007. Some talkin heads say a recession is coming. The 10 year is where stock money goes during a recession was the reasoning.

The DOW dropped 150 points when the inversion happened. It appears many are not just standing there doing nothing.
We know what the market did. We don’t know why it did what it did. It is far more likely that both equity traders and bond traders were responding to the same new information, quite possibly the news that the German economy contracted in Q2. It is unlikely that equity traders said, “Gee, look at that bad news. Let’s wait and see what bond traders do before we decide how to react.”
The instant the 2 and 10 year inverted the DOW fell 150 points. That is high speed algorithms trading. What caused the additional 600 point drop during the day is not as clear.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Northern Flicker » Wed Aug 14, 2019 5:33 pm

Still doesn’t mean they both were not reacting to the same 3rd event. Traders have servers collocated on exchanges. Their execution is much faster than the time it takes for you to get the information on a news site.
Last edited by Northern Flicker on Wed Aug 14, 2019 10:12 pm, edited 1 time in total.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Dialectical Investor » Wed Aug 14, 2019 9:17 pm

MichCPA wrote:
Wed Aug 14, 2019 12:16 pm
Dottie57 wrote:
Wed Aug 14, 2019 11:51 am
Stinky wrote:
Wed Aug 14, 2019 6:56 am
HawkeyePierce wrote:
Wed Aug 14, 2019 6:47 am
gotta say, I don’t think anything good comes from watching CNBC. :wink:
+1
+1. I think CNBC is trying to generate news instead of just reporting it.
Par for the course with them.

Most of what I have read about the yield curve says that there is an increased chance of a recession somewhere between 6 mo and 2 yr out. It's pretty similar to saying there is an increased chance of a hurricane over that time frame. You don't know when, how bad or how long, so its not as useful as people make it out to be.

ETA: I just looked it up and the YC inverted closer to 2 yrs before the last recession... which kind of reinforces the point.
Not to single you out, but the CNBC bashing here is a little over the top sometimes, based on my experience. I watched the channel regularly many years ago, then gave it up for a couple decades. Recently, I started watching during breakfast to see what old familiar faces were left from days gone by. (Most are long gone, it seems.) But many of the topics brought up on this forum are actually mentioned on air. In fact, your very point regarding yield curve inversions was discussed during the segment I saw. Certainly the most useful information can be glossed over quickly, there are many distractions, and watching TV news in general is probably the least efficient way of gathering information and gaining understanding, but it's not all circus clowns either.

The "closing" spread for the day is positive: 0.01.

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Re: Treasury 2-10 year yield curve has inverted!

Post by willthrill81 » Wed Aug 14, 2019 9:35 pm

nisiprius wrote:
Wed Aug 14, 2019 8:21 am
Remember, the National Bureau of Economic Research not only will not try to predict a recession, it will not even state that we are in one while we are still in one. Only when it is over will they declare a starting date. So, on the day that a recession begins, you do not know that it has begun.
You have said this in many other threads, but frankly it seems to be only an appeal to authority. I believe that we can do better than that.

Many people seem to be believe in this logic chain: Yield-curve inversion -> Recession -> Bear market in stocks, ergo, you should get out of stocks when the yield-curve inverts.

The data I have seen have strongly indicated that yield curve inversion has portended a recession. However, the inversion has, at times, come as much as two years or even sooner before the onset of the recession, IIRC. Gains in that intervening period could more than offset the later losses encountered in a recession. So the first link in the chain seems tenuous.

Regarding the second link in the chain, there have been almost twice as many recessions as bear markets since 1920, so clearly a recession is not a dead-ringer for a bear market, making the second link in the chain questionable also.

The last link, that a bear market will eventually occur means you should get out now makes several assumptions, including the issue referred to above that stocks may post significant gains before the bear market hits. It also assumes that the market hasn't already 'priced in' the effects of the yield-curve inversion by the time that you sell. Also, the above logic chain says nothing about when you should get back into stocks. Missing the bear market only to wait too late to get back in may prevent you from getting ulcers but significantly inhibit your returns.
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Re: Treasury 2-10 year yield curve has inverted!

Post by abuss368 » Wed Aug 14, 2019 9:36 pm

It did briefly a couple of times recently. Bonds provide ballast and funds that can be used to rebalance to stocks.
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Re: Treasury 2-10 year yield curve has inverted!

Post by abuss368 » Wed Aug 14, 2019 10:59 pm

ohai wrote:
Wed Aug 14, 2019 1:17 pm
Janet Yellen said today she doesn't think it matters too much.
Interesting.
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Forester
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Re: Treasury 2-10 year yield curve has inverted!

Post by Forester » Thu Aug 15, 2019 5:53 am

Sakura wrote:
Wed Aug 14, 2019 5:08 pm
The notion of associating Bitcoin and even gold with being a safe asset seems a bit questionable.

Gold lost something like 80% of its value from the days of the volcker fed in 81 to the year 2000. Bitcoin just tanked more than 50% in the past couple years. Can we really call something a safe asset with that kind of history?

What does seem similar is the cult following both have...the gold bugs and now the crypto bugs. The gold bugs being more likely to have an AARP card and the Bitcoin ones, an Instagram account.

The yield curve doesn't seem to me as potent an indicator. Everyone knows this, the media is running stories on it constantly. My entire life trading and now following buy/hold I've always believed that information is not knowledge much less power.

I mean, suppose for a minute you say it's definitely going to happen and a recession is coming. Fine, what can we do to act on this...go out of stocks completely? Buy bonds that have laughable yields? Short the market?

There are a few decent trades that I can see but they're just that and certainly not any sort of long term plan.
Isn't a start point for gold of 1981 questionable? Over the very long term it should match inflation (Claude Erb who dislikes gold wrote a good paper on gold's historic value, it's buying power today is remarkably similar to the Roman Empire era).

'Safety' should be determined by how gold behaves during economic stress. It had a healthy decline in the 80s & 90s when stock markets were flying, then a patient investor who stayed the course in the 2000s had a relatively easy decade.

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Re: Treasury 2-10 year yield curve has inverted!

Post by nisiprius » Thu Aug 15, 2019 5:57 am

I was wrong in doubting that a brief intra-day statistical artifact "counts" as an inverted yield curve. A hundred news stories, and a relationship--whether correlation or causation--to a stock market drop, shows that it counts as far as "the market" is concerned.

I did peek at three or four research papers on the relationship between yield curves and recessions, and, oddly, none of them actually said anything at all about the time intervals at which the yield curve was sampled.
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Re: Treasury 2-10 year yield curve has inverted!

Post by MichCPA » Thu Aug 15, 2019 7:41 am

Dialectical Investor wrote:
Wed Aug 14, 2019 9:17 pm

Not to single you out, but the CNBC bashing here is a little over the top sometimes, based on my experience. I watched the channel regularly many years ago, then gave it up for a couple decades. Recently, I started watching during breakfast to see what old familiar faces were left from days gone by. (Most are long gone, it seems.) But many of the topics brought up on this forum are actually mentioned on air. In fact, your very point regarding yield curve inversions was discussed during the segment I saw.
Guilty as charged, most of my CNBC experience was listening to the morning show or Cramer on Sirius during my commute. Cramer pulls more 180s and 360s than a sundial and that made me swear off the whole group. TBH, mornings weren't nearly as bad.

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Re: Treasury 2-10 year yield curve has inverted!

Post by ReformedSpender » Thu Aug 15, 2019 8:18 am

Stay the course cus nobody knows nuttin' :beer


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Re: Treasury 2-10 year yield curve has inverted!

Post by bgatze » Thu Aug 15, 2019 9:39 am

So I am in the business of hotels and at the HDC (Hotel Data Conference) right now and the opening speaker who is the VP of tourism economics shared these thoughts on this topic. Thought I would share. Trying to post from phone and new to forum so I apologize if this doesn’t work as intended.


https://drive.google.com/file/d/1Qd_B3g ... p=drivesdk

https://drive.google.com/file/d/1afKxoG ... p=drivesdk

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Re: Treasury 2-10 year yield curve has inverted!

Post by Northern Flicker » Thu Aug 15, 2019 3:20 pm

An inverted yield curve is not only indicative of increased risk of a recession, but can be another driver of a recession. Banks borrow short and lend long. A flattened or inverted yield curve makes it less profitable and potentially even unprofitable to lend. A falloff in credit can lead to a recession.

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Re: Treasury 2-10 year yield curve has inverted!

Post by willthrill81 » Thu Aug 15, 2019 4:02 pm

Northern Flicker wrote:
Thu Aug 15, 2019 3:20 pm
An inverted yield curve is not only indicative of increased risk of a recession, but can be another driver of a recession. Banks borrow short and lend long. A flattened or inverted yield curve makes it less profitable and potentially even unprofitable to lend. A falloff in credit can lead to a recession.
Good point. I'd not thought of that before.
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Re: Treasury 2-10 year yield curve has inverted!

Post by shess » Thu Aug 15, 2019 4:08 pm

AlohaJoe wrote:
Wed Aug 14, 2019 6:28 am
J G Bankerton wrote:
Wed Aug 14, 2019 6:15 am
HawkeyePierce wrote:
Wed Aug 14, 2019 6:08 am
And just like that, it's positive again!

What a short recession. :happy
The DOW is still free-falling though. The algorithm's are not happy.
A drop of -0.97% is free falling? :shock:
DJIA hasn't been this low since June 4th! Run for the hills!

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Re: Treasury 2-10 year yield curve has inverted!

Post by columbia » Thu Aug 15, 2019 4:17 pm

Stocks up today, but LTT way up.

I presume some folks are extending the duration of some of their bond holdings. These things become a self-fulfilling prophecy after a certain point.

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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Thu Aug 15, 2019 5:21 pm

hagridshut wrote:
Wed Aug 14, 2019 9:36 am
My friends in the financial industry almost all consider CNBC to be a joke: either "Jerry Springer"-like entertainment for people in the know, or a tool to manipulate rubes.
CNBC is full of financial industry types selling it. They are the Jerry Springer entertainment I watch. I wish they would start slapping each other like the Three Stooges.
columbia wrote:
Thu Aug 15, 2019 4:17 pm
Stocks up today, but LTT way up.

I presume some folks are extending the duration of some of their bond holdings. These things become a self-fulfilling prophecy after a certain point.
US 30-year Treasury yield falls to new historic low
Bonds are up if one owns them. Now is the time to pay off the national debt with cheap money.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Riley15 » Thu Aug 15, 2019 5:59 pm

willthrill81 wrote:
Thu Aug 15, 2019 4:02 pm
Northern Flicker wrote:
Thu Aug 15, 2019 3:20 pm
An inverted yield curve is not only indicative of increased risk of a recession, but can be another driver of a recession. Banks borrow short and lend long. A flattened or inverted yield curve makes it less profitable and potentially even unprofitable to lend. A falloff in credit can lead to a recession.
Good point. I'd not thought of that before.

While this is true Banks are not under any obligation to follow the treasury yield curve in any way. Banks are not competing with the Treasury on loans but they are competing with each other. They will never borrow at a higher rate then they lend or vice-versa. These spreads are determined by what the competition is doing.
Last edited by Riley15 on Thu Aug 15, 2019 6:02 pm, edited 1 time in total.

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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Thu Aug 15, 2019 6:01 pm

Riley15 wrote:
Thu Aug 15, 2019 5:59 pm
These spreads are determined by what the competition is doing.
The treasury yield is determined at auction; the bond goes to the lowest bidder.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Riley15 » Thu Aug 15, 2019 6:10 pm

J G Bankerton wrote:
Thu Aug 15, 2019 6:01 pm
Riley15 wrote:
Thu Aug 15, 2019 5:59 pm
These spreads are determined by what the competition is doing.
The treasury yield is determined at auction; the bond goes to the lowest bidder.
Yes when it comes to raising money (borrowing) but lending rates (mortgage, auto, etc..) are directly controlled by the market (banks).

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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Thu Aug 15, 2019 6:55 pm

Riley15 wrote:
Thu Aug 15, 2019 6:10 pm
J G Bankerton wrote:
Thu Aug 15, 2019 6:01 pm
Riley15 wrote:
Thu Aug 15, 2019 5:59 pm
These spreads are determined by what the competition is doing.
The treasury yield is determined at auction; the bond goes to the lowest bidder.
Yes when it comes to raising money (borrowing) but lending rates (mortgage, auto, etc..) are directly controlled by the market (banks).
OIC you were talking about banks. What spread were you referring to?

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Re: Treasury 2-10 year yield curve has inverted!

Post by Riley15 » Thu Aug 15, 2019 7:01 pm

J G Bankerton wrote:
Thu Aug 15, 2019 6:55 pm
Riley15 wrote:
Thu Aug 15, 2019 6:10 pm
J G Bankerton wrote:
Thu Aug 15, 2019 6:01 pm
Riley15 wrote:
Thu Aug 15, 2019 5:59 pm
These spreads are determined by what the competition is doing.
The treasury yield is determined at auction; the bond goes to the lowest bidder.
Yes when it comes to raising money (borrowing) but lending rates (mortgage, auto, etc..) are directly controlled by the market (banks).
OIC you were talking about banks. What spread were you referring to?
I was referring to the rate spread between borrowing and lending for banks. This will never be flat or inverted such as the treasury yield curve.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Northern Flicker » Thu Aug 15, 2019 7:46 pm

Bonds are up if one owns them. Now is the time to pay off the national debt with cheap money.
This is backwards. It is cheap for the govt to borrow when rates are low. If you mean the govt should refinance its debt when rates are low, that is what it normally does. In fact it always refinances it’s debt regardless of rates because paper matures and is reissued.

The percentage of the nat’l debt that is in t-bills is quite high, so the debt turns over fairly rapidly. And short rates are a fair bit higher than they had been in recent years.

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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Thu Aug 15, 2019 7:56 pm

Northern Flicker wrote:
Thu Aug 15, 2019 7:46 pm
Bonds are up if one owns them.
This is backwards.
If I have a bond and rates fall my bond is worth more because its higher rate doesn't change.

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Re: Treasury 2-10 year yield curve has inverted!

Post by TheNightsToCome » Thu Aug 15, 2019 7:56 pm

The 2 to 10 is still positive (barely), but the curve from 30 days to 30 years inverted this evening: 1.968% to 1.965%.

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Re: Treasury 2-10 year yield curve has inverted!

Post by averagedude » Thu Aug 15, 2019 8:06 pm

So OP, how are you allocated. I notice on another thread where you said that stock market returns over the next 10 years will be negative. Have you sold out yet?

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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Thu Aug 15, 2019 8:23 pm

averagedude wrote:
Thu Aug 15, 2019 8:06 pm
So OP, how are you allocated. I notice on another thread where you said that stock market returns over the next 10 years will be negative. Have you sold out yet?
I never said that. I'm 100% stock*, 90% VTI and 10% VXUS. I'm bullish on America and never sell stock.

* Except for my venture capital fund.

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Re: Treasury 2-10 year yield curve has inverted!

Post by willthrill81 » Thu Aug 15, 2019 9:06 pm

J G Bankerton wrote:
Thu Aug 15, 2019 7:56 pm
Northern Flicker wrote:
Thu Aug 15, 2019 7:46 pm
Bonds are up if one owns them.
This is backwards.
If I have a bond and rates fall my bond is worth more because its higher rate doesn't change.
But your expected return going forward is lower. IIRC, for bonds with a 10 year maturity, this historically evens out pretty well. Their starting yield has been a good approximation of their forward 10 year returns with a margin of error of about +/- 1% annual return.
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Re: Treasury 2-10 year yield curve has inverted!

Post by Beensabu » Thu Aug 15, 2019 9:40 pm

willthrill81 wrote:
Wed Aug 14, 2019 9:35 pm
However, the inversion has, at times, come as much as two years or even sooner before the onset of the recession, IIRC. Gains in that intervening period could more than offset the later losses encountered in a recession.
As as example, could you please provide a past period in which the bolded statement was true, as well as indicate just how much the gains in that period offset the later losses?
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."

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Re: Treasury 2-10 year yield curve has inverted!

Post by willthrill81 » Thu Aug 15, 2019 9:42 pm

Beensabu wrote:
Thu Aug 15, 2019 9:40 pm
willthrill81 wrote:
Wed Aug 14, 2019 9:35 pm
However, the inversion has, at times, come as much as two years or even sooner before the onset of the recession, IIRC. Gains in that intervening period could more than offset the later losses encountered in a recession.
As as example, could you please provide a past period in which the bolded statement was true, as well as indicate just how much the gains in that period offset the later losses?
It was only a theoretical statement, and I'm not sure if it's actually happened.

Barron's actually had a mildly interesting article on this topic yesterday. The data the author cites might support the theoretical possibility I raised.
And today’s volatility aside, stocks have actually tended to do quite well following yield curve inversions. In the last five occurrences since 1978, the S&P 500 has been an average of 13.5% higher a year later, according to data compiled by Dow Jones Market Data. The same holds true on average over two- and three-year periods following an inversion, with the S&P 500 up 14.7% and 16.4%, respectively.

The near-term implications can be a bit hairier, however. Three months after the 2-year/10-year yields flipped, the S&P 500 has been down over 10% (in 1978), and up over 13% (in 1980). On average, the index has climbed 2.5% in the 90 days after an inversion of that pair.
And for the record, I am a trend follower, so unlike most BHs, I do believe that it's possible to manage risk more effectively than with a static AA comprised of stocks and fixed income, although actually doing it consistently may be a challenge for various reasons. That's a topic for another thread.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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J G Bankerton
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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Thu Aug 15, 2019 10:47 pm

willthrill81 wrote:
Thu Aug 15, 2019 9:06 pm
J G Bankerton wrote:
Thu Aug 15, 2019 7:56 pm
Northern Flicker wrote:
Thu Aug 15, 2019 7:46 pm
Bonds are up if one owns them.
This is backwards.
If I have a bond and rates fall my bond is worth more because its higher rate doesn't change.
But your expected return going forward is lower. IIRC, for bonds with a 10 year maturity, this historically evens out pretty well. Their starting yield has been a good approximation of their forward 10 year returns with a margin of error of about +/- 1% annual return.
A bond will pay the same interest until maturity. Index bond funds have to sell to maintain the duration of the index. Of course holding a bond to maturity eliminates any gain or loss of principal.

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Re: Treasury 2-10 year yield curve has inverted!

Post by willthrill81 » Thu Aug 15, 2019 10:57 pm

J G Bankerton wrote:
Thu Aug 15, 2019 10:47 pm
willthrill81 wrote:
Thu Aug 15, 2019 9:06 pm
J G Bankerton wrote:
Thu Aug 15, 2019 7:56 pm
Northern Flicker wrote:
Thu Aug 15, 2019 7:46 pm
Bonds are up if one owns them.
This is backwards.
If I have a bond and rates fall my bond is worth more because its higher rate doesn't change.
But your expected return going forward is lower. IIRC, for bonds with a 10 year maturity, this historically evens out pretty well. Their starting yield has been a good approximation of their forward 10 year returns with a margin of error of about +/- 1% annual return.
A bond will pay the same interest until maturity. Index bond funds have to sell to maintain the duration of the index. Of course holding a bond to maturity eliminates any gain or loss of principal.
Ah, I see now that you were talking about a bond and not a bond fund.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Treasury 2-10 year yield curve has inverted!

Post by Northern Flicker » Fri Aug 16, 2019 12:45 am

J G Bankerton wrote:
Thu Aug 15, 2019 7:56 pm
Northern Flicker wrote:
Thu Aug 15, 2019 7:46 pm
Bonds are up if one owns them.
This is backwards.
If I have a bond and rates fall my bond is worth more because its higher rate doesn't change.
How does that affect the level of the national debt?

averagedude
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Re: Treasury 2-10 year yield curve has inverted!

Post by averagedude » Fri Aug 16, 2019 3:47 am

J G Bankerton wrote:
Thu Aug 15, 2019 8:23 pm
averagedude wrote:
Thu Aug 15, 2019 8:06 pm
So OP, how are you allocated. I notice on another thread where you said that stock market returns over the next 10 years will be negative. Have you sold out yet?
I never said that. I'm 100% stock*, 90% VTI and 10% VXUS. I'm bullish on America and never sell stock.

* Except for my venture capital fund.
Sorry. I stand corrected. It was another person that said this, not you.

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Re: Treasury 2-10 year yield curve has inverted!

Post by JoeRetire » Fri Aug 16, 2019 6:23 am

J G Bankerton wrote:
Wed Aug 14, 2019 5:40 am
On CNBC they are running a 2-10 year bond ticker. They have inverted for the first time since 2007. Some talkin heads say a recession is coming. The 10 year is where stock money goes during a recession was the reasoning.

The DOW dropped 150 points when the inversion happened. It appears many are not just standing there doing nothing.
Don't just stand there and do nothing... panic!

Sell! Do it now! Or maybe later?
Or buy! Do it now! Or maybe later?

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J G Bankerton
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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Fri Aug 16, 2019 7:04 am

Northern Flicker wrote:
Fri Aug 16, 2019 12:45 am
J G Bankerton wrote:
Thu Aug 15, 2019 7:56 pm
Northern Flicker wrote:
Thu Aug 15, 2019 7:46 pm
Bonds are up if one owns them.
This is backwards.
If I have a bond and rates fall my bond is worth more because its higher rate doesn't change.
How does that affect the level of the national debt?
It doesn't as that is past. Going forward borrowing at a lower rate pays off the old higher rate. It's like refinancing; it's time to issue 100 year bonds.

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corn18
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Re: Treasury 2-10 year yield curve has inverted!

Post by corn18 » Fri Aug 16, 2019 7:23 am

Printing money would certainly drive up inflation, right? Seems a lot easier than lowering rates and getting into a recession. :twisted:
Don't do something, just stand there!

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J G Bankerton
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Re: Treasury 2-10 year yield curve has inverted!

Post by J G Bankerton » Fri Aug 16, 2019 9:04 am

corn18 wrote:
Fri Aug 16, 2019 7:23 am
Printing money would certainly drive up inflation, right? Seems a lot easier than lowering rates and getting into a recession. :twisted:
That only works for a short time and devalues the dollar. Then I'm all in on Bitcoin like the people in failing economies.

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Re: Treasury 2-10 year yield curve has inverted!

Post by Northern Flicker » Fri Aug 16, 2019 10:02 pm

It doesn't as that is past. Going forward borrowing at a lower rate pays off the old higher rate. It's like refinancing; it's time to issue 100 year bonds.
Which is why I said the govt can refi the debt but not actually pay down debt by borrowing to pay it off. Most of the nat’l debt is in t-bills, used to be 96% but I think it is somewhat lower now. In any case, the shirt instruments turnover rapidly. But times of low rates also tend to be times of reduced income tax receipts,
Last edited by Northern Flicker on Mon Aug 19, 2019 4:31 pm, edited 1 time in total.

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