I would not interpret the currently very flat
yield curve as indicating a significant economic slowdown to come, for several reasons.
This would decrease interest rates for further out on
the yield curve as opposed to only the overnight rate.
Investors often fear a flattening of the US
yield curve as it tends to suggest a lower growth environment ahead.
A short term result of the Fed's continuing increase in the Fed funds rate is a flatter
yield curve as seen in the chart of the spread between the 10 - year and two - year treasury notes.
Note: Using the above
yield curve as an example, it should not interpreted to say that the market believes that two years from now the short - term interest rates will be 2.7 % (the two - year yield as shown above).
In effect, agency REITs are a play on
the yield curve as they borrow inexpensively on the short end of the curve, and «lend» more expensively on the long end.
You would be speculating on different points of
the yield curve as your bond aged.
Hedge funds are pushing the limits on a steep
yield curve as this is certainly a crowded trade.
The New York and Cleveland Federal Reserve banks both use
the yield curve as a leading indicator of the risk of recession in the near future, typically between two to six quarters ahead.
I view
the yield curve as an indicator for inflation.
In Australia, we have come to think of the downward sloping
yield curve as the norm, and banks have developed cash management - type products to cater for those wishing to capitalise on high short term interest rates.
Dave Altig of MacroBlog fame suggests NY Fed's Arturo Estrella yield curve primer:
The Yield Curve as a Leading Indicator.
For example, it is often useful to view the short - end of
the yield curve as being primarily influenced by growth, with the long - end mostly reflecting inflation expectations.
No corporate issuer, or class of issuers, is ever likely to be able to provide
a yield curve as well - defined and liquid as that of the Commonwealth.
This affects
the yield curve as well, in ways that potentially can be exploited, even by unlettered dabblers lacking a PhD Econ.
We anticipate higher interest rates across
the yield curve as North American central banks normalise monetary policy amid slowly returning inflation.
Ashwin Alankar of Janus Henderson published his latest article «Brace for Steeper
Yield Curves as the Wolves Return,» which highlighted grey wolf's role in maintaining a delicate balance in Yellowstone's ecosystem by keeping population of herbivores in - check, which in - turn reduced risks of overgrazing of young brush and trees in the park.
Not exact matches
CHICAGO / SAN FRANCISCO, April 20 -
As the gap between short - and long - term borrowing costs hovers near its lowest in more than 10 years, speculation has risen over whether the so - called
yield curve is signaling that a recession could be around the corner.
Especially since the recent behavior of Japan's key financial market variables (stock indices, the
yield curve and the yen's exchange rate) could be seen
as a sign of support for reflationary policies.
In addition, everyone is now fretting about an «inverted
yield curve,» which is the phenomenon when long - term
yields, such
as the 10 - year
yield, fall below short - term
yields, such
as the three - month
yield or the two - year
yield.The last time this happened was before the Financial Crisis.
Since then, longer rates have come closer to being overtaken by short rates, a phenomenon known
as yield curve inversion, which has been a reliable precursor of past recessions.
CHICAGO / SAN FRANCISCO, April 20 (Reuters)-
As the gap between short - and long - term borrowing costs hovers near its lowest in more than 10 years, speculation has risen over whether the so - called
yield curve is signaling that a recession could be around the corner.
«The
yield curve is not nearly
as much of a concern
as I might have pointed to a couple months ago,» Evans said in Chicago after a speech, in response to a reporter's question.
Assuming they and insurance companies buy
as much
as JP Morgan and others estimate, long - term
yields may not rise at all this year and
yield curves will remain flat.
NEW YORK, Nov 28 - The Federal Reserve faces the challenge of standing by
as financial markets «correct»
as the central bank trims its asset holdings, U.S. hedge fund manager David Tepper said on Tuesday, adding he was surprised the bond -
yield curve was so flat.
«If the Fed continues to raise rates according to our forecast and the term premium does not recover, the
yield curve would invert by the end of 2019, potentially
as early
as June of next year,» they write in a note.
The
yield curve - the plot of all of the
yields on Treasury securities of maturities from four weeks to 30 years - is used
as a signal of economic health of the economy.
But the bank has taken more extreme measures, such
as ramping up purchases to more than 40 percent of the market overall and saying it would control the
yield curve by keeping the 10 - year government bond
yield around 0 percent.
In the extreme case, if China continues to defend its currency, it could cause the U.S.
yield curve to invert
as it sells 5 - year notes.
«
As the inflation data was as expected..., yields are down a touch across the curve,» said Peter Boockvar, chief investment officer at Bleakley Advisory Grou
As the inflation data was
as expected..., yields are down a touch across the curve,» said Peter Boockvar, chief investment officer at Bleakley Advisory Grou
as expected...,
yields are down a touch across the
curve,» said Peter Boockvar, chief investment officer at Bleakley Advisory Group.
The
yield curve, which normally slopes upward, has extended its tightening trend
as lackluster economic data have pushed down long - dated
yields even
as senior Fed officials» backing for a gradual - but - sustained hiking trajectory have lifted long - dated
yields.
BMO strategists say higher oil prices should ultimately lead to a flatter
yield curve, not a steeper
curve as seen last week
A flattening
yield curve moving toward an inverted
curve traditionally has been seen
as a sign of a...
An inverted
curve, where the 2 - year
yield rises above the 10 - year, is viewed
as a precursor to a recession.
Achievement of these goals was considered by the HRC
as very challenging, even aggressive, given the expected modest economic growth for 2007 for the financial services industry, the impact and duration of the on - going flat / inverted
yield curve (meaning short - term interest rates that are virtually equal to or exceed long - term interest rates, thus lowering profit margins for financial services companies that borrow cash at short - term rates and lend at long - term rates), potentially higher credit losses, fewer available high - quality, high -
yielding loans and investment opportunities, and a consumer shift from non-interest to interest - bearing deposits.
A steeper
yield curve is seen
as a positive for banks and other financial institutions.
As the 10 - year
yield began to really break out last week, the focus was also on the
yield curve that had been getting flatter and flatter to a 2007 low.
There is a question
as to how accurate the
yield curve would be in forecasting a double - dip recession but the jury is still out on that.
Potenza:
As the
yield curve flattens, investors get less compensation for moving further out on the
curve and taking on more duration risk.
Our bottom line: Persistent risk aversion not only suppresses rates across the
yield curve but raises the premium on assets seen
as the most safe and liquid.
As a result, the
yield curve flattened and by the end of December was near inversion for the first time in a decade.
We believe a step - up in risk aversion has led to a structural rise in precautionary savings, further dragging down bond
yields across the
curve — a trend that won't quickly change,
as we write in our Global macro outlook The safety premium driving low rates.
These include financials, which should benefit from a steepening
yield curve, but also segments of the consumer space and «old economy» companies in sectors such
as industrials and energy.
The U.S. Treasuries
yield curve flattened
as the GDP data renewed bets that the Federal Reserve would continue hiking rates to keep inflation in check.
Even
as rates rise in general, the influence of central banks and expectations for inflation can create short term movements in the
yield curve that can be exploited using systematic style premia.
Bond market geeks refer to this
as a «flattening of the
yield curve,» meaning that shorter - term interest rates rose while longer - term interest rates fell.
• Maybe Banks and Insurers: So long
as there's an upward - sloping
yield curve, banks should benefit.
When growth is strong and inflation is falling,
as happened during the 1980s, you could indeed have a «bullish flattening» of the
yield curve (Federal Reserve Bank of San Francisco).
The difference between long - term and short - term interest rates is known
as the «slope of the
yield curve», or «the term spread.»
The Barron's article pointed this out
as well, citing London - based «G+E conomics» head Lena Komileva: «A surplus of investment funds looking for returns in low -
yield global markets results in a cap on longer - term
yields and a flat
yield curve.»