Some on Wall Street say the Bond Market is the smartest due to the fact that participants are only focused on repayment risk and time of that repayment. Compared to the Equity (Stocks) market were there are flows of capital, tons of complication with financials and mood swings by participants.
Given the Bond Markets high IQ status, when it speaks people listen….
Inverted Yield Curve as Bond Market Beats it Chest with a Warning
As a quick refresher, a normal yield curve will have lower rates for shorter terms and higher rates for longer…. simply because the longer the term the greater chance of a problem/stress/default …
Pardon my free hand, but it looks like this… the longer the time the greater the cost/interest rate
When the Bond Market turns upside down/inverts, it has a very good track record of predicting a R- Word!
Note on this long term chart, as the line drops below zero, the Bond Market is Beating its chest and inverting…. also note the grey area that follow are R-Words…
Using a shorter term chart, last week marked a strong inversion of about -.25% and closed the week off at -.20% note those are point 25% and point 20%…. far right below the line…
So it looks like the R Word is in the cards, not to worry we have been talking slowdown since December of 2021… so we are prepared….
Remember, Equity Markets are forward looking and will sniff out the recovery before it is seen…. Also, recall, headlines are the worst near the end…. Still a Ways to Go though!
Next up — Why the Fed is in a pickle and may only have an R- Word way out!
Have a Great “Inverted Yield Curve” Update Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
Quick Update on Treasury Yields…. 2 Year and 10 Year Treasury Yield Down, Price Up, Good for Stocks at the Moment but ….
With a road trip happening as you read this…. was a bit short on time for our mid-week post…. links in this post explain a lot….
Wanted to draw your attention to the move in US Treasury yields/bonds (and show off our new Koyfin technology too) …. this is the 2 and 10 year (still inverted- more to come on this- digressing) ….more importantly, the sudden drop, commenced by an FOMC meeting and then reinforced by weaker Employment data has bond interest rates down, bond prices up…..
This move down in yields has initially pushed Stocks up, and bond portfolios UP… we are cautious to call a victory lap on this bond and interest rate movement, but again worth noting…..
More importantly, bonds go up and rates down, under this circumstance because the smart guys in the room… are pricing in a slowing of the economy…. NOT usually good for Stocks…. after the candy wears off!
Have a Great “Quick Deeper Dive/Second Level Thinking on Rates” Day!
John A. Kvale CFA, CFP
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Posted in Interest Rates, Investing/Financial Planning, Market Comments
Tagged 10 Year, 2 Year, Inverted, Inverted Yield Curve, Smartest Guys in the Room, Treasury