Alright, if the title did not scare you off… hope not, we wanted to review the current state of interest rates, with some helpful (in our humble opinion IMHO) comments !
Here we go!
Deep Dive on Interest Rates
First up the US 1 Year Treasury
Think of this as your checking account interest with a little extra earnings … hence the one year time frame.
Seems long ago with all the worlds events, but not too long ago we were in the mid 2% range, currently at .12% ….
Many say we will be in this lower range for a long time, short sighted in our minds, but time will tell!
Next up the US 10 Year Treasury
Think of this as our proxy for mortgage rates, long term inflation and general economic growth expectations.
Not so long ago, in the mid 2% zone looking like we were headed to 3% … today .64%.
Many of the same folks saying we will be here for a long time. We will see!
10 Year Treasury Versus 90 Day Treasury – The Recession Predictor
Not sure if it was luck or just prophetic markets, but when this chart drops below zero (AKA Yield curve inverts) frequently a slowdown comes !
Inversion much of 2019 and then again during the early stages of the lock down.
Take special note of the spike in late March… recall that was when investors tossed their “safe” fixed income investments out the door because they had not other assets they wanted to sell … after the initial spike, normalcy returned.
US versus UK One Year Rates
Thought this was very interesting ….
This most recent interest rate cycle was shallow compared to historical norms, notice how the UK rates were even more shallow.
Many other countries could be inserted here as well with the same result
There you have it, a deep dive on domestic interest rates, yield curves and international comparisons….
Last Friday a new “Block Editor” was forced upon us … think of it as a makeover for all publishing/editing tools on our blog – initially HATED it….but upon further review we are getting used to it and hope you like some of the new fancy features – Like the Big A to start the post!
Have a Great “Deep Dive Interest Rates” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
$treet-¢ents 
Get Ready for the R-Word Headlines … The What Word?
Inverted Yield curves have an odd and accurate way of predicting the R Word (What’s that, we rarely say this word out of optimism…… RECESSION!)
This post was actually started early last week, BEFORE a ton of headlines…. a quick google search of “Inverted Yield Curve” yielded the following….
Ok, so the word it out… but let’s go ahead and discuss….
Yields are a reflection of risk, so the longer the time, the greater the risk, the higher the yield “Should” be…
The Yield Curve is most notably the curve from normal times, lower left to upper right and is basically the yields (% interest rate) of the different time terms, such as 1,2,3,4 …10 year treasury…
There are all types of ways to measure, but one of the most accurate is the 2 years treasury against the 10 year treasury yield…
So by taking the 10 year yield and subtracting the 2 year yield, under normal times there will be a positive difference…. When the difference is negative, there is a problem as longer term risk/interest rates are lower than shorter, creating the inverted yield curve…..
2 year and 10 year Current Spread Update
1976 to present, grayed areas are R- Words
And a more blown up last year to date (had to update this chart too, as last week it had NOT inverted)
Not a deep inversion, but it has inverted…
Couple of important thoughts:
The R word is defined by two negative GDP prints in a row (no matter the depth i.e. could be -.01 and -.01)
While accurate in predicting (2-10 spread) timing is not, times vary from inversion after the R-Word has already started to multiple years…
Just as timing is a mystery, as mentioned above, depth of the R-Word from this mighty predictor is also variable…
We are watching, and you will certainly be seeing headlines!
Now you know!
Have a Great “R-Word Heads Up’ Day!
John A. Kvale CFA, CFP
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Posted in Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments
Tagged FOMC, Interest Rates, Inverted Yield Curve, Yield Curve