Tag Archives: Yield Curve

Bond Market Beats its Chest … Invertedly/Upside Down Yield Curve …. R – Word Predictor (Recession)

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.

jkfinancialinc

street-cents

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…

Hand Drawn from Prior Inversion Period and Analysis

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

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

Deep Dive on Interest Rates and Yield Curves … With Helpful Comments … New Fancy Fonts and Colors

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.

jkfinancialinc

street-cents

Calls of an Inverted Yield Curve – Premature SO FAR –

This week a funny thing happened … on the yield curve that is, garnering a lot of attention. Those following our writings, here, here, and here, know we are watching for an inverted yield curve since it has a good predictive nature for recessions – a topic for another discussion. Heck, even Kent Smetters, the Wharton co-host professor mentioned the yield curve had inverted.

Inverted Yield Curve? Kinda!

Here is a good picture of a normal yield curve

 

20180424_122733810_iOS

Inversion occurs when the short term rate goes higher than the long term rate i.e. the 2 year greater than the 10 or even more clearly, the 90 day rate greater than the 10 year…

What happened this week were the 2 and 5 year yields, slightly inverting –

Does this count?

Maybe? BUT the real predictability is from the afore mentioned short and long, not short and slightly longer short…

Here is the 2 and 10’s, followed by the 90 day and 10’s

12-3-18 2 year versus 10 year daily12-3-18 90day versus 10 year constant

It may invert, and we will let you know when it happens, if it happens, but for now, in our minds ….

No inversion yet, but we are watching close!

Have a Great “Not Inverted Yet” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents

Inverted Yield Curve Fancy Chart – After Seven Notices by Us!

We are happy to humbly state when someone comes out with a really cool chart – in this case, it out does our charts/comments seen here, here , here, here. here, here and here – all good – We were there much earlier – theirs is pretty, much prettier, slight worry about so many all talking about it – discussion for another time …

Check this out!

explaining-yield-curve

Have a Great “Inverted Yield Curve” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
street-cents

May 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale

Hello and Welcome to our May 2018 Financial Planning and Capital Market Update!

If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.

May 2018 Video

Financial Planning Tip (s) –

Social Security Website and Items to check while you are perusing

In our Social Security related post here, we discuss the tons of new options for use as well as the fantastic updates the Social Security Administration has done with their website.

img_1043-1

The most important item to check if you are not already drawing Social Security is your credits… which can be done on this site… recall there is a possible time sunset of loosing your benefits if you do not have the Social Security Office notified, leading to a possible lower benefit.

New Tax Table and Rates – Personal

Here are the new tax tables… if they look complicated, well it is because they ARE !

Marginal-Tax-Rates-Chart-for-2018-1

Expect much more on this throughout the coming months as we dig DEEP into the actual rates and the planning techniques necessary to optimize our tax liability …. One Important five letter word…. CLUMP – more later on this!

Capital Market Comments

Interest Rate Yield Curve – Rates – Inverted Yield Curve

Bottom line, at its most basic level the yield curve should go upward and outward just as our home made chart below (the starting point for our discussion.)

20180424_122733630_iOS

When it does completely the opposite or inverts, as seen below… a recession is just around the corner for as long as the eye can see!

2s 10s Spread W Recession sfredgraph

Expect a complete detailed video over the summer on this phenomenon … along with another review in the coming Newsletter… It can be boring info, not to worry … we will liven it up!

Have a Great Day – Talk to you at the end of June!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Interest Rates Part FIVE/Final – The FOMC Overshoot, a Recession Predictor – The Inverted Yield Curve

Finally our conclusion to what we have all been waiting for …. The Predictive Value of our discussion …

So we know the FOMC fiddles with rates…

The FOMC Federal Open Market Committee raising the totally controlled short end … recall, they do not totally control the longer end… capital market participants do!

 

FOMC Raises Rates

This following Chart is our sizzle….

This is the difference of the 2 year yield and the 10 year yield for about 5-6 decades…

When the 2 year yield is BELOW the 10 year  yield the line is plotted above zero … think 1% less 3%, would give you a data point of 2 on this chart….

When the short end of the curve is ABOVE the long end — totally backwards to all logic, the plot on the graph would be BELOW zero… areas which we have circled in red…

Grey area are recessions …. just behind the inversions —

Take a moment and check this chart out…

2s 10s Spread W Recession sfredgraph

Here is an easier to see chart from 1999 to present–

2s 10s spread 99 to present - fredgraph

Why don’t they stop raising?

They cannot, it is their mandate – keep inflation under control …. raising rates is their main control mechanism.

Also, it is beyond their control as investors actually pile into the long end of the curve dropping it’s rate while the FOMC raises, in anticipation of the next recession…

Creating the Inverted Yield Curve!

In Never go all in or All out fashion, if the curve inverts we do not pack up our things and leave …. BUT  caution is definitely advised.

There will be excuses …

  • it’s different this time …
  • rates are un-natural …
  • rates are low …

Maybe- worth heeding with a track record shown above….

We will keep you posted!

Hope you enjoyed the Series … Quick links – Part 1, Part 2, Part 3, Part 4

Have a Great “Not Inverted Yield Curve” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Interest Rates Part Two of a Series – Movement along the Yield Curve – Parallel Yield Curve Shift

In our prior post here, we discussed the basic yield curve and why the longer the term, all other things being equal, the greater the risk, AND the greater the cost to finance or lend.

A Parallel Movement of the Yield Curve

Just like the weather or most other items in life, the Yield Curve can change.

Generically, during faster growth periods of time .. think inflation or a faster growing economy, rates are higher.

During slower periods of time, rates may fall or go lower.

Assuming they do this pretty much evenly across the curve, changes look like our hand drawn graph below.

A Parallel Shift Across the Yield Curve.

 

20180430_211733703_iOS

Next up,  real life examples of rates on the Yield curve AND where the Federal Reserve influences rates most on the curve.

Have a Great “Steady Yield Curve Movement” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

April 2018 Podcast Video, Financial Planning and Capital Market Update – By John Kvale

Hello and Welcome to our April 2018 Financial Planning and Capital Market Update!

If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast format.

April 2018 Video

Financial Planning Tip (s) –

With Tax season finally over, here we mentioned how it seemed to never end…but we digress…

It appears the Cyber Thieves are back at it again, and have a new technique involving Social Security. Here in our Social Cyber Post, we discuss just how they are doing this.Cyber Attack

Bottom line, if you see something suspicious, be sure to notify the appropriate agency.

Capital Market Comments

Early Discussions of the Interest Rate Yield Curve – Rates

This is going to be fun …. In the first of a multi-part series here, we discuss the basics of the yield curve.

Bottom line, at its most basic level the yield curve should go upward and outward just as our home made chart below (the starting point for our discussion.)

 

20180424_122733630_iOS

 

Have a Great Day! Talk to you at the end of May!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Interest Rates and Their Importance, Part 1

Yesterday the 10 year US Treasury Bond did something it has not done in some time …. reach a yield of 3%.

4-24-18 10 year Treasury Yield

The Yield Curve – Interest Rates

We have been preparing for some time a multipart series about interest rates and the yield curve its self, and with the recent move in rates higher (finally) the timing could not be better. You will see a lot about this in the coming weeks if you peer into the Financial Section on your computer, periodical or tablet view … so we wanted to prep in advance.

This discussion will be multipart analysis, discussion, education and conclusion …. we hope you enjoy (we think you will as there is a terrific conclusion).

While the chart above shows the most popular “Headline” rate for most, it is really just one part of a series of rates …. here is where our discussion is born… so let’s go!

20180424_122733630_iOS

Liking to keep things simple, this is a self drawn chart that we will build upon, but gets the point across.

The longer something takes, generally the more it should cost.  (Greater risk of loss)

Said another way, the more time something takes, the more it should cost.

If you loan a buddy $100 bucks today to be repaid tomorrow, it is less risky than if you give it to him for a year and hope to get it back! Right?

Our self made chart shows just this, the longer the time, the greater the cost.

Looking again at our chart, we could say the term is anywhere from one day going all the way out to 30 years, with the afore mentioned 10 year term being near the right end of the chart.

This chart shows what could be called a normal yield curve or cost situation.

Next up … Change!

Have a Great “Yield Curve Discussion” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com