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The Yield Curve is Inverted

5,313 Views | 28 Replies | Last: 1 yr ago by PeekingDuck
AgBank
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AG
3 year is at 2.827 and the 5 year is at 2.821.


Currently my fixed income investments have duration mix to hedge against the rising interest rates. Should I take this as a sign / good time to start moving my duration out on my bond portfolio?
Duncan Idaho
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Isn't the big concern when the 2 and 10 years invert?
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AgBank
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Either the fed is mucking around with its balance sheet or bond investors don't see many more rate increases, or both.
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AgBank
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SoupNazi2001 said:

Or they see economic growth and inflation slowing.
Agreed. That is what I meant by "don't see many more rate increases".

According to Bloomberg, it is the first inversion in over a decade, even though the 10 year is more closely watched as an indicator. link
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96ags
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Several economist that I've spoken with lately see one more rate hike (outside of the Dec. one) in spring of '19 and a minor recession starting 2nd to 3rd quarter of next year.
mazag08
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https://www.bondbuyer.com/articles/the-flattening-yield-curve-just-produced-its-first-inversion
Bonfire1996
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Investment in real estate has come to a near complete halt. Just an FYI. Pipelines that were full are now half full. You will still see jobs going as these were closed 6 mos ago, but the middle of 2019 is going to be slow for production.
mazag08
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Bonfire1996 said:

Investment in real estate has come to a near complete halt. Just an FYI. Pipelines that were full are now half full. You will still see jobs going as these were closed 6 mos ago, but the middle of 2019 is going to be slow for production.
Yup. Nobody has any idea about what will happen, but investors are keeping money on the sidelines expecting the fed to charge forward into chaos.
drill4oil78
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AgBank said:

3 year is at 2.827 and the 5 year is at 2.821.


Currently my fixed income investments have duration mix to hedge against the rising interest rates. Should I take this as a sign / good time to start moving my duration out on my bond portfolio?
5 year - 2 year means nothing in the next 6-12 months. The media likes to harp on this so called inversion as a sign for recession. Someone tell me when there has been a recession when the 5-3 or 5-2 has been inverted within the 6-12 months of the inversion. Need to look at when the 10 year and a shorter term bond like 3 months is inverted then we have a problem. Yields are going down not up during this inversion of the 5-3 and 5-2. .... The market is telling the Fed they need to stop raising short term rates.
RogerEnright
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Isn't an inverted yield curve typically telling the Fed to slow the rate increases, even if it is the 10 / 2 year?

Prior to the last recession, the yield curve inverted on Dec of 2005. We may be still looking at 24 months etc. I have no reason to believe that when the 10 year 2 year inverts that a recession will happen faster as nothing else in this cycle has.
Monywolf
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96ags said:

Several economist that I've spoken with lately see one more rate hike (outside of the Dec. one) in spring of '19 and a minor recession starting 2nd to 3rd quarter of next year.
A recession is defined as two consecutive quarters of negative GDP. Very unlikely there will be a recession next year. More likely is an earnings recession. We are coming off three consecutive quarters of 20+% earnings growth.

Not the end of the world to slow down.
drill4oil78
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SpeedyMilt said:

Isn't an inverted yield curve typically telling the Fed to slow the rate increases, even if it is the 10 / 2 year?

Prior to the last recession, the yield curve inverted on Dec of 2005. We may be still looking at 24 months etc. I have no reason to believe that when the 10 year 2 year inverts that a recession will happen faster as nothing else in this cycle has.
The lowering yields are telling the Fed to rest. You generally have an inverted curve with rising rates.
AgBank
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A few good charts on inverted yield curves:

Article


I did end up putting in some trades and will continue to lengthen my average bond duration.
FriendlyAg
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Bonfire1996 said:

Investment in real estate has come to a near complete halt. Just an FYI. Pipelines that were full are now half full. You will still see jobs going as these were closed 6 mos ago, but the middle of 2019 is going to be slow for production.


What asset class? Not seeing that in NNN development yet. Disposition and hold timelines are elongated but pipeline and investors are strong.
mazag08
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FriendlyAg said:

Bonfire1996 said:

Investment in real estate has come to a near complete halt. Just an FYI. Pipelines that were full are now half full. You will still see jobs going as these were closed 6 mos ago, but the middle of 2019 is going to be slow for production.


What asset class? Not seeing that in NNN development yet. Disposition and hold timelines are elongated but pipeline and investors are strong.
I'm in multifamily. Sure there is money still moving, but most of the institutional equity is in wait and see mode.
AgBank
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AgBank said:

3 year is at 2.827 and the 5 year is at 2.821.



The Yield Curve is even more inverted, but not yet with the 10 year.

7 year is at 2.488%
1 year is at 2.533%

10 year is still above at 2.592%
DallasAggie0
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mazag08 said:

FriendlyAg said:

Bonfire1996 said:

Investment in real estate has come to a near complete halt. Just an FYI. Pipelines that were full are now half full. You will still see jobs going as these were closed 6 mos ago, but the middle of 2019 is going to be slow for production.


What asset class? Not seeing that in NNN development yet. Disposition and hold timelines are elongated but pipeline and investors are strong.
I'm in multifamily. Sure there is money still moving, but most of the institutional equity is in wait and see mode.


I am hearing from the appraisal shops in DFW that the lending work has slowed quite a bit
nortex97
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Bumping this old thread as the topic seems pertinent today; pretty good article from FT.

https://ig.ft.com/the-yield-curve-explained/?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9

Mortgage demand is off 40 percent.
RockOn
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The S&P is up 70% since this thread was started.
Outdoorag011
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With the Fed balance sheet up almost 5 trillion since this thread started. Daddy Jerome is king! Another example of why timing the market is pointless. As long as you aren't close to retiring, just ride out the storms.
evan_aggie
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nortex97 said:

Bumping this old thread as the topic seems pertinent today; pretty good article from FT.

https://ig.ft.com/the-yield-curve-explained/?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9

Mortgage demand is off 40 percent.


The mortgage demand makes me wonder what is coming. Sales will be down bc even with equity in homes, people may not want to sell and reup on a new 5% note versus their 3%.

Realtors were living large the last 5 years. The well might be drying up a bit just from deceased volume.
nortex97
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RockOn said:

The S&P is up 70% since this thread was started.
True, but the thread ain't over yet.
BenTheGoodAg
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nortex97 said:

Bumping this old thread as the topic seems pertinent today; pretty good article from FT.

https://ig.ft.com/the-yield-curve-explained/?segmentId=b385c2ad-87ed-d8ff-aaec-0f8435cd42d9

Mortgage demand is off 40 percent.

Quote:

Surging interest rates push mortgage demand down more than 40% from a year ago
I'm not so sure about that 2nd one. Not that recent rake hikes haven't contributed to sluggish home sales, but it's only part of the equation, and surely secondary to the insane rise in home prices in the last year. Interest rates today are close to what they were in late 2018, FWIW.
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FTAco07
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The rate doesn't matter near as much as you would think, it's the rate of change that drives buyer/investor psychology. Everyone has sub 3% rates fresh in their mind and feels like they are getting bent over a barrel at 5%.
PeekingDuck
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I suspect people wouldn't be so shaken if the property didn't cost twice as much as it did a few years ago.
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