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Market Oracle FREE Newsletter

Category: Inverted Yield Curve

The analysis published under this category are as follows.

Interest-Rates

Saturday, December 15, 2018

Market Confusion About the Yield Curve Inversion / Interest-Rates / Inverted Yield Curve

By: Donald_W_Dony

Last week, the 5-year Treasury note fell below the 2-year note causing many market watchers to suggest the US Yield Curve is inverting. And as the Curve is a leading indicator to the stock market, the bears came out in force declaring the party has ended.

Nothing could be further from the truth.

The more important yield comparison to watch is the 2-year Treasury note versus the 10-year note.

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Stock-Markets

Wednesday, December 05, 2018

Yield Curve Harbinger of Stock Market Doom / Stock-Markets / Inverted Yield Curve

By: Gary_Tanashian

“The Harbinger of Doom”? Of course we (well, the media) are talking about the yield curve AKA Amigo #3 of our 3 happy-go-lucky riders of the macro. I have annoyed you repeatedly with this imagery in order to show that three important macro factors needed to finish riding before situation turns decidedly negative.

Amigo 1: SPX (or stocks in general)/Gold Ratio

Amigo 2: 30 Year Treasury Yield

Amigo 3: Yield Curve

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Economics

Tuesday, April 10, 2007

The US Economy: Is Manufacturing and the Yield Curve Signalling Recession? / Economics / Inverted Yield Curve

By: Gerard_Jackson

The US yield curve is giving a lot of economic commentators the jitters. The rule is that whenever the yield curve goes negative, i.e., short-term interest rates exceed long-term interest rates, a recession emerges some 12 to 18 months later. There was a great deal of hand-wringing in late 2005 when the yield turned negative. Recently the curve has started to flatten, with some commentators now predicting that it will once again go positive and give the US economy another spurt of growth.

The odd thing here is that the economic commentariat do not seem to realize that in a truly free market the yield curve would always tend to be flat. If a difference between long-term and short-term rates emerged then arbitrage would eliminate the difference. Say, for instance, short-term rates began to rise, then investors would desert long-term rates in favour of short-term rates. This would see short-term rates fall and long-term rates rise until the curve was flat.

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Interest-Rates

Saturday, March 31, 2007

Draw the Yield Curve, Then Plot the Data / Interest-Rates / Inverted Yield Curve

By: John_Mauldin

This week we look at something which has far more potential to hurt the economy than subprime loans - the US Congress. We muse on inflation data and why the economy may do better than I think.

Let's start with a question from reader Dr. Rick Simon Associate Professor of Mathematics of the University of La Verne. After some very nice comments, he threw in the zinger:

"That said, however, you've gone far into the 'draw the curve, then plot the data' mentality this time. It wasn't enough to 'spin' the data the way you want it; for example, by citing only the Fed's Moskow and ignoring Bernanke and others. You actually state, 'Fewer buyers and those losing their homes will mean more rentals. That means rent prices will go up.' Please do explain how more rentals on the market will cause rent prices to go up."

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Interest-Rates

Monday, March 19, 2007

The Inverted Yield Curve - Is It Really Different This Time? / Interest-Rates / Inverted Yield Curve

By: Paul_L_Kasriel

One of the components of the index of Leading Economic Indicators is the spread between the 10-year nominal Treasury yield and the federal funds rate (hereafter referred to as "the spread"). When the spread is widening, it is thought to be a harbinger of faster future real economic growth; when the spread is narrowing, it is thought to be a harbinger of slower future real economic growth. When the spread becomes negative, or the yield curve inverts, a necessary condition of a recession occurs.

That is, every recession starting with the one in 1970 has been preceded by a negative yield spread (See Chart 1, in which the shaded vertical areas represent recessions). However, there has been one occasion since the recession of 1970 when the yield spread turned negative and a recession did not occur. That was in the summer of 1998 at the time of the Long-Term Capital Markets arbitrage fund meltdown. The pace of economic activity slowed at this time and the Federal Reserve quickly dropped the fed funds rate by 75 basis points, perhaps forestalling a recession.

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Interest-Rates

Friday, March 16, 2007

The Inverted US Yield Curve - Is It Really Different This Time ? / Interest-Rates / Inverted Yield Curve

By: Paul_L_Kasriel

One of the components of the index of Leading Economic Indicators is the spread between the 10-year nominal Treasury yield and the federal funds rate (hereafter referred to as “the spread”). When the spread is widening, it is thought to be a harbinger of faster future real economic growth; when the spread is narrowing, it is thought to be a harbinger of slower future real economic growth. When the spread becomes negative, or the yield curve inverts, a necessary condition of a recession occurs. That is, every recession starting with the one in 1970 has been preceded by a negative yield spread (See Chart 1, in which the shaded vertical areas represent recessions).

However, there has been one occasion since the recession of 1970 when the yield spread turned negative and a recession did not occur. That was in the summer of 1998 at the time of the Long-Term Capital Markets arbitrage fund meltdown. The pace of economic activity slowed at this time and the Federal Reserve quickly dropped the fed funds rate by 75 basis points, perhaps forestalling a recession. 

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