Re: Business, Economics, and Tax Policy 8: Bezos Takes Over the World
Yeah, but none of this was surprising. The much talked about yield curve began its path to inversion a while ago. But you don't really know whether that means anything without some other confirmation. The interest rate market (especially the 3-month) showed real signs of the inversion back in December/January. Once the 3-month crests, you can bet an inversion isn't that far behind. It's almost as good an indicator for when things start to go t-ts up.
https://fred.stlouisfed.org/series/TB3MS
It just seems like once that starts ticking up, the fuse is lit and it's only a matter of time. Maybe not as reliable as the yield curve, but still pretty obvious nonetheless.
There are other indicators as well. I'd be willing to bet if you took the forecasted capital investment for the Fortune 50 and plotted it, it would be an even better indicator. Once that starts seizing, it's like the housing market. It just sends shockwaves.
Edit: I think this is what this is...
https://fred.stlouisfed.org/series/BOGZ1FA895050005Q
Edit 2: Then there's this gloomy read: https://www.bloomberg.com/opinion/ar...yield-is-scary
Originally posted by St. Clown
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https://fred.stlouisfed.org/series/TB3MS
It just seems like once that starts ticking up, the fuse is lit and it's only a matter of time. Maybe not as reliable as the yield curve, but still pretty obvious nonetheless.
There are other indicators as well. I'd be willing to bet if you took the forecasted capital investment for the Fortune 50 and plotted it, it would be an even better indicator. Once that starts seizing, it's like the housing market. It just sends shockwaves.
Edit: I think this is what this is...
https://fred.stlouisfed.org/series/BOGZ1FA895050005Q
Edit 2: Then there's this gloomy read: https://www.bloomberg.com/opinion/ar...yield-is-scary
At first glance, it seems as if a haven bid is afoot. That’s true, to an extent. But, crucially, it’s important to recognize that the longest-maturity Treasuries are leading the rally. The benchmark 10-year U.S. yield, by contrast, is still about 30 basis points away from its record low. This suggests something beyond just a flight to quality.
Consider the duration of the long bond compared with shorter-maturity notes. The effective duration of a 30-year Treasury is about 21 years, while it’s about 8.7 years for a 10-year Treasury. That means that if yields rose across the curve by 1 percentage point, owners of 10-year notes would suffer an 8.7% loss. That’s pretty bad. But it’s nothing compared to the long bond, which in that scenario would lose a staggering 21%, meeting the usual definition of a bear market. Even if 30-year yields just rose back to the level they were at two weeks ago, it would mean double-digit losses for anyone who purchased them on Wednesday.
In fact, for bond traders, 30-year Treasuries might just be the riskiest part of the debt market because they can usually be whipsawed by a change in global economic conditions or the outlook for inflation. The prospect for steep losses only intensifies the lower the yield falls.
However, this relentless rally at the long end shows that bond traders have completely let go of all fear of rising interest rates, stronger-than-expected economic growth or a sustained rebound in inflation. That should be as nerve-wracking to investors as the prospect of a global economic recession. After all, there’s a playbook for dealing with a downturn and an inverted curve. There’s no historical guide to sovereign debt yields across the world trading at, near or below zero.
Consider the duration of the long bond compared with shorter-maturity notes. The effective duration of a 30-year Treasury is about 21 years, while it’s about 8.7 years for a 10-year Treasury. That means that if yields rose across the curve by 1 percentage point, owners of 10-year notes would suffer an 8.7% loss. That’s pretty bad. But it’s nothing compared to the long bond, which in that scenario would lose a staggering 21%, meeting the usual definition of a bear market. Even if 30-year yields just rose back to the level they were at two weeks ago, it would mean double-digit losses for anyone who purchased them on Wednesday.
In fact, for bond traders, 30-year Treasuries might just be the riskiest part of the debt market because they can usually be whipsawed by a change in global economic conditions or the outlook for inflation. The prospect for steep losses only intensifies the lower the yield falls.
However, this relentless rally at the long end shows that bond traders have completely let go of all fear of rising interest rates, stronger-than-expected economic growth or a sustained rebound in inflation. That should be as nerve-wracking to investors as the prospect of a global economic recession. After all, there’s a playbook for dealing with a downturn and an inverted curve. There’s no historical guide to sovereign debt yields across the world trading at, near or below zero.
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