Disaster Bond Yield Curve Inverts for First Time Since 2005 - Markets take a dump in response.

ForgedBlades

Milled wedges.
kiwifarms.net
Main yield curve inverts as 2-year yield tops 10-year rate, triggering recession warning

  • The yield on the benchmark 10-year Treasury note was at 1.623%, below the 2-year yield at 1.634%.
  • The last inversion of this part of the yield curve was in December 2005, two years before a recession brought on by the financial crisis hit.
  • A recession occurs, on average, 22 months following such an inversion, according to Credit Suisse.

The yield on the benchmark 10-year Treasury note broke below the 2-year rate early Wednesday, an odd bond market phenomenon that has been a reliable, albeit early, indicator for economic recessions.

The yield on U.S. 30-year bond also turned heads on Wall Street during Wednesday’s session as it fell to an all-time low, dropping past its prior record notched in summer 2016. The two historic moves coming in tandem show that investors are increasingly worried, and indeed preparing for, a slowdown in both the U.S. and global economies.
Early Wednesday, the yield on the benchmark 10-year Treasury note was at 1.623%, below the 2-year yield at 1.634%. In practice, that means that investors are better compensated for loaning the U.S. over two years than they are for loaning for 10 years. The yields steepened later in the session, pushing the 10-year rate back above that of the 2-year note.

The yield on the 30-year Treasury bond traded at 2.02%, well below its former record low of 2.0889% hit in 2016 following Britain’s Brexit vote. Yields fall as bond prices rise.

The last inversion of this part of the yield curve was in December 2005, two years before the financial crisis and subsequent recession. Economists often give the spread between the 10-year and the 2-year special attention because inversions of that part of the curve have preceded every recession over the past 50 years.

“I have to yield to the historical evidence and note that the phrase ‘this time is difference’ usually doesn’t work,” said Arthur Bass, managing director of fixed income financing, futures, and rates at Wedbush Securities.

“It’s a very unusual time period: We haven’t had tariff issues like we’re dealing with currently in about 80 years,” he continued. “It’s about dealing with negative rates in most of the European countries and Japan. Again, I have respect for the inverted yield curve as a signal that recession is ahead.”

Still, while the inversion is cause for concern, there is often a significant lag before a recession hits and an economic downturn ensues.

Data from Credit Suisse going back to 1978 shows:
  • The last five 2-10 inversions have eventually led to recessions.
  • A recession occurs, on average, 22 months following a 2-10 inversion.
  • The S&P 500 is up, on average, 12% one year after a 2-10 inversion.
  • It’s not until about 18 months after an inversion when the stock market usually turns and posts negative returns.
Going farther back in history, the yield curve’s track record gets a little more spotty. Post WWII, inversions have predicted seven of the last nine recessions, according to Sung Won Sohn, professor of economics at Loyola Marymount University and president of SS Economics.

“This is a track record any economist would be proud of,” said Sohn.

Long-term yields have plummeted in August as concerns surrounding trade developments and GDP growth — coupled with expectations for lackluster inflation and more aggressive central bank action — have sent nervous traders in search of safer investments.

Central banks around the world, including the Federal Reserve, have pivoted once again to easing policies. Major government debt in countries like Germany now have negative yields.

The yield on the 10-year Treasury note, an important rate banks use when setting mortgage rates and other lending, has fallen a steep 40 basis points this month.

“The US equity market is on borrowed time after the yield curve inverts. However, after an initial post-inversion dip, the S&P 500 can rally meaningfully prior to a bigger US recession related drawdown,” wrote Bank of America technical strategist Stephen Suttmeier.

A portion of the yield curve inverted earlier this year, raising economic concerns as three-month yield topped the 10-year yield.

The popularity of the safety offered by bonds is at financial crisis levels among professional investors as many steel themselves for slowing growth ahead, according to a survey of fund managers conducted by Bank of America Merrill Lynch.

The poll found a net 43% of market pros see lower short-term rates over the next 12 months, compared with just a net 9% that saw higher long-term rates. In sum, that’s the most bullish outlook on fixed income since November 2008.

“While yield curve inversions can be a leading indicator of economic weakness or recession, they are an early warning sign,” Suttmeier said.
 

Sissy Galvez

kiwifarms.net
Does the lack of replies to this imply that A&H is ignoring this because it could be potentially bad for Trump or because it involves economics?

All I know is I'm looking forward to another day where /biz/ is flooded with pink wojacks
Don’t expect trump supporters to understand the economy. They barely understand 1 + 2.

This could be quite serious because Trump and his team don’t know what they’re doing and it’s pretty obvious they’re trying to destabilize things so they can buy when the whole thing falls apart. The rich are always fine during recessions and then make bank when the market booms and consolidate more wealth.
 

It's HK-47

Meatbag's Bounty of Bodies
True & Honest Fan
kiwifarms.net
I like how the same news website pulled in a former Federal Reserve Chair to talk about how the inverted curve might not even be anything worth worrying about this time. Do you guys want to incite an economic panic or don't you? In the very least try to pick a coherent narrative before you go stomping forwards.

Every other indicator firmly disagrees with a looming recession and this isn't even the first time the DOW has dipped nor is it the most that it's dipped even just this year, and yet last time no one lit their hair on fire and ran around screaming bloody murder. Manufactured panic really does get tiring after awhile.
 

Abortions4All

Can't complain (but sometimes I still do)
kiwifarms.net
I think this is artificial, and designed to provoke an interest rate reduction. The entire startup-based economy is addicted to cheap money right now and are slavering over the idea of cutting rates, but most economic indicators were too good to consider it. A couple of these stories in the media with a lot of handwringing about how it always indicates a recession that we can hold back now if we reduce interest rates may be all it will take to get Daddy Trump and his band of merry men to give everyone free cash forever. Or so goes the hope.
 

Noideawhattopick

kiwifarms.net
Don’t expect trump supporters to understand the economy. They barely understand 1 + 2.

This could be quite serious because Trump and his team don’t know what they’re doing and it’s pretty obvious they’re trying to destabilize things so they can buy when the whole thing falls apart. The rich are always fine during recessions and then make bank when the market booms and consolidate more wealth.
Absalootely nobody understands it like you. That's why there is not many posts here, because trump supporters understand fuck all of the economy.

We understand so little in fact that we need a route of things to come. And when it exactly happens we would like to know. That would be good so we can stock up our gold supply (lol)
Enlighten us why exactly the US is going down.

Bare in mind I am not American my Germanistan is going down in the next couple of years.
So as a European I am more fucked, might as well share your wisdom with me.
 
  • Winner
Reactions: Cedric_Eff

Dracula's Spirit Animal

One time, I accidentally ate a bunch of nails
kiwifarms.net
I like how the same news website pulled in a former Federal Reserve Chair to talk about how the inverted curve might not even be anything worth worrying about this time. Do you guys want to incite an economic panic or don't you? In the very least try to pick a coherent narrative before you go stomping forwards.

Every other indicator firmly disagrees with a looming recession and this isn't even the first time the DOW has dipped nor is it the most that it's dipped even just this year, and yet last time no one lit their hair on fire and ran around screaming bloody murder. Manufactured panic really does get tiring after awhile.
I look at it as evidence for another reason these idiots are so bitter. They have never had thick enough skin to weather the markets. Anyone who invests in the markets and has any kind of success doesn't panic at the slightest downturn. They happen all the time. It works well for those of us who actually make money out of the market, however.

Market drops minorly: Thin-skinned panic-prone people sell.
Ok: People like me buy.
Market recovers days or weeks later: people like me sell and buy the next stock people mindlessly panic about.

It's the history of making money in markets... the primary way to do it, IMO, and it's kind of embarrassing that fools part with their money so readily and then blame the market.

They should have never put a cent into it in the first place if they don't have the backbone or fortitude for it.

Edit: I mean stock markets and not commodity markets.
 

RodgerDodger

kiwifarms.net
I so hate the media. Yeah an inverted yield curve typically occurs before a recession. Like 2+ years before. Considering growth and recession typically are cyclical it's almost the same as saying "Snow is a precursor to recession, everybody panic!" Because they can say with absolute certainty that it always snows within 24 months before a recession. Also do note the Bond Yeild curve is not really that indicative of the US domestic economy so much as it is of the Global one. Germany is in a recession even if they wont admit it. China is currently assaulting their largest financial center with combat troops. These by themselves may presage a global economic pullback. And yeah Trump's shaking up the US trade with China (and Europe) does not exactly help the global numbers. But it remains to be seen how this all shakes out. And it certainly is not anything worth panicing over today. I mean "OMG Macy's revenue is down 46% Everybody Panic!!!". Yeah maybe a shitty clothing store from prior centuries that only the elderly shop at should not be viewed as a key overall economic indicator. we know retail is being assblasted due to economic creative destruction. Invest in other areas.
 

Locomotive Derangement

Hardcore Velocity
kiwifarms.net
Does the lack of replies to this imply that A&H is ignoring this because it could be potentially bad for Trump or because it involves economics?

All I know is I'm looking forward to another day where /biz/ is flooded with pink wojacks
I'm still surprised that people think a President that's only been in office for a few years can affect the economy so drastically one way or the other. The timeframes it takes for poor economic policies to show results are glacial. Its possible his trade war with China might be doing more harm than good, but even if it is it'll just be the cherry on top of our rotten to the core economic system. There is some serious Enron shit going on right now with bad loan practices. There's also TechBubble 2.0 convincing people that Big Data is actually valuable to anyone other than the surveilance industry. Corporate debt is also quite high which is fine normally but if anything disasterous happens companies can start collapsing left and right.

This one is my own theory backed up by minimal data, but I also suspect that the student loan market is going to implode at some point. Right now it appears to be kept salient by stiff government regulations that make it difficult for a jobless hipster to default but if anything changes it could lead to a run.

Marketing and Market Research as a field is also so disgusting and bloated that I can't comprehend how it still exists. In this age, the average intern fresh out of high school can do a marketing job in their sleep since the next generation is so enslaved by social media. Corporate entities are literally just throwing money away in this field, the costs for market research studies and materials are ENORMOUS and the results of them are usually so mundane and pedestrian that anyone on the street could have told you that in passing.
 
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