Tag Archives: Yield Curve

Yield Curve Inverts For The First Time Since 2007: Recession Countdown Begins

The most prescient recession indicator in the market just inverted for the first time since 2007.

https://www.zerohedge.com/s3/files/inline-images/bfm960.jpg?itok=c0gP8hQC

Don’t believe us? Here is Larry Kudlow last summer explaining that everyone freaking out about the 2s10s spread is silly, they focus on the 3-month to 10-year spread that has preceded every recession in the last 50 years (with few if any false positives)… (fwd to 4:20)

As we noted below, on six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal. 

And here is Bloomberg showing how the yield curve inverted in 1989, in 2000 and in 2006, with recessions prompting starting in 1990, 2001 and 2008. This time won’t be different.

https://www.zerohedge.com/s3/files/inline-images/prior%20inversions.jpg?itok=BgnEMjCQ

On the heels of a dismal German PMI print, world bond yields have tumbled, extending US Treasuries’ rate collapse since The Fed flip-flopped full dovetard.

https://www.zerohedge.com/s3/files/inline-images/bfm14B0.jpg?itok=Ez0lIVd_

The yield curve is now inverted through 7Y…

https://www.zerohedge.com/s3/files/inline-images/bfm1EA4.jpg?itok=xPH6zVO8

With the 7Y-Fed-Funds spread negative…

https://www.zerohedge.com/s3/files/inline-images/bfm2864.jpg?itok=HqnSx1RR

Bonds and stocks bid after Powell threw in the towell last week…

https://www.zerohedge.com/s3/files/inline-images/bfmA98E.jpg?itok=D4zUXHf3

But the message from the collapse in bond yields is too loud to ignore. 10Y yields have crashed below 2.50% for the first time since Jan 2018…

https://www.zerohedge.com/s3/files/inline-images/bfm5670.jpg?itok=rocy5sKV

Crushing the spread between 3-month and 10-year Treasury rates to just 2.4bps – a smidge away from flashing a big red recession warning…

https://www.zerohedge.com/s3/files/inline-images/bfm36A8.jpg?itok=3cfUyMJ1

Critically, as Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator, James Bianco, president and eponym of Bianco Research LLC notes today. On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal. 

Bianco concludes that the market, like Trump, believes that the current Funds rate isn’t low enough:

While Powell stressed over and over that the Fed is at “neutral,” . . . the market is saying the rate hike cycle ended last December and the economy will weaken enough for the Fed to see a reason to cut in less than a year.

https://www.zerohedge.com/s3/files/inline-images/bfm1B73_0.jpg?itok=iZGfa7C7

Equity markets remain ignorant of this risk, seemingly banking it all on The Powell Put. We give the last word to DoubleLine’s Jeff Gundlach as a word of caution on the massive decoupling between bonds and stocks…

“Just because things seem invincible doesn’t mean they are invincible. There is kryptonite everywhere. Yesterday’s move created more uncertainty.”

Source: ZeroHedge

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10Y Treasury Yield Tumbles Below 2.50% As 7Y Inverts

The bond bull market is alive and well with yesterday’s bond-bear-battering by The Fed extending this morning.

10Y Yields are back below 2.50% for the first time since Jan 2018…

https://www.zerohedge.com/s3/files/inline-images/bfmCA1F.jpg?itok=_jgnif7R

…completely decoupled from equity markets….

https://www.zerohedge.com/s3/files/inline-images/bfm51AD.jpg?itok=s4YZh3r-

The yield is now massively inverted to Fed Funds…

https://www.zerohedge.com/s3/files/inline-images/bfm8BAA.jpg?itok=hEx0M8LV

With 7Y yields now below effective fed funds rate…

https://www.zerohedge.com/s3/files/inline-images/bfm5F7C.jpg?itok=yYvetY6-

Source: ZeroHedge

Are You Prepared For A Credit Freeze?

2, 3 and 5-Year Treasury Yields All Drop Below The Fed Funds Rate

Things are getting increasingly more crazy in bond land, where moments ago the 2Y Treasury dipped below 2.40%, trading at 2.3947% to be exact, and joining its 3Y and 5Y peers, which were already trading with a sub-2.4% handle. Why is that notable? Because 2.40% is where the Effective Fed Funds rate is, by definition the safest of safe yields in the market, that backstopped by the Fed itself. In other words, for the first time since 2008, the 2Y (and 3Y and 5Y) are all trading below the effective Fed Funds rate.

That the curve is now inverted from the Fed Funds rate all the way to the 5Y Treasury position suggests that whatever is coming, will be very ugly as increasingly more traders bet that one or more central banks may have no choice but to backstop risk assets and they will do it – how else – by buying bonds, sending yields to levels last seen during QE… i.e., much, much lower.

https://confoundedinterestnet.files.wordpress.com/2019/01/5eff.png?w=622&h=448

Explained…

Source: ZeroHedge

***

Gold Soars Above $1,300; Nikkei, JGB Yields Tumble As Rout Goes Global

https://www.zerohedge.com/sites/default/files/inline-images/gold%20futs%201.3.jpg?itok=Wll68K3N

Highly Unusual US Treasury Yield Pattern Not Seen Since Summer of 2000

Curve watchers anonymous has taken an in-depth review of US treasury yield charts on a monthly and daily basis. There’s something going on that we have not see on a sustained basis since the summer of 2000. Some charts will show what I mean.

Monthly Treasury Yields 3-Month to 30-Years 1998-Present:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07b1.png?w=768&h=448

It’s very unusual to see the yield on the long bond falling for months on end while the yield on 3-month bills and 1-year note rises. It’s difficult to spot the other time that happened because of numerous inversions. A look at the yield curve for Treasuries 3-month to 5-years will make the unusual activity easier to spot.

Monthly Treasury Yields 3-Month to 5-Years 1990-Present:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07a3.png?w=768&h=454

Daily Treasury Yields 3-Month to 5-Years 2016-2017:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07c1.png?w=768&h=448

Daily Treasury Yields 3-Month to 5-Years 2000:

https://mishgea.files.wordpress.com/2017/09/yield-curve-2017-09-07d.png?w=768&h=453

One cannot blame this activity on hurricanes or a possible government shutdown. The timeline dates to December of 2016 or March of 2017 depending on how one draws the lines.

This action is not at all indicative of an economy that is strengthening.

Rather, this action is indicative of a market that acts as if the Fed is hiking smack in the face of a pending recession.

Hurricanes could be icing on the cake and will provide a convenient excuse for the Fed and Trump if a recession hits.

Related Articles

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  2. Hurricane Harvey Ripple Effects: Assessing the Impact on Housing and GDP
  3. “10-Year Treasury Yields Headed to Zero Percent” Saxo Bank CIO

By Mike “Mish” Shedlock

Yields Acting Like Economy Is Heading Into Recession

Treasury Yields and Rate Hike Odds Sink: Investigating the Yield Curve

The futures market is starting to question the June rate hike thesis. For its part, the bond market is behaving as if the Fed is hiking the economy into a recession. Here are some pictures.

June Rate Hike Odds

https://mishgea.files.wordpress.com/2017/05/fedwatch-2017-05-17.png?w=768&h=693

No Hike in June Odds

  • Month ago – 51%
  • Week Ago – 12.3%
  • Yesterday – 21.5%
  • Today – 35.4%

10-Year Treasury Note Yield

https://mishgea.files.wordpress.com/2017/05/10-year-2017-05-171.png?w=625

The yield on the 10-year treasury note doubled from the low of 1.32% during the week of July 2, 2016, to the high 2.64% during the week of December 10, 2016.

Since March 11, 2017, the yield on the 10-year treasury note declined 40 basis points to 2.24%.

30-Year Long Bond

https://mishgea.files.wordpress.com/2017/05/30-year-2017-05-17.png?w=625

The yield on the 30-year treasury bond rose from the low of 2.09% during the week of July 2, 2016, to the high of 3.21% during the week of March 11, 2017.

Since March 11, 2017, the yield on the 30-year treasury bond declined 29 basis points to 2.92%

1-Year Treasury Note Yield

https://mishgea.files.wordpress.com/2017/05/1-year-2017-05-17.png?w=625

The yield on the 1-year treasury more than doubled from the low of 0.43% during the week of July 2, 2016, to the high 1.14% during the week of May 6, 2017.

Since March 11, 2017, the yield curve has flattened considerably.

Action in the treasury yields is just what one would expect if the economy was headed into recession.

By Mike “Mish” Shedlock | MishTalk