Posted on 07/04/2023 7:07:24 AM PDT by CFW
A widely watched section of the U.S. Treasury yield curve hit its deepest inversion on Monday since the high inflation era of Fed Chairman Paul Volcker, reflecting financial markets' concerns that an extended Federal Reserve rate hiking cycle will tip the United States into recession.
The closely-watched spread between the 2-year and 10-year U.S. Treasury note yields hit the widest since 1981 at -109.50 in early trade, a deeper inversion than in March during the U.S. regional banking crisis. The gap was last at -108.30 bp.
Signs of strength in the U.S. economy have prompted market participants to price in the possibility of additional rate hikes this year to keep inflation in check. Futures markets had reflected rate cuts at the central bank's September meeting as recently as May, and are now projecting that the first cuts will come in January.
(Excerpt) Read more at finance.yahoo.com ...
Official numbers in everything from durable good orders to consumer confidence levels seem to be totally opposite from the news being reporting from industries and various business sectors. We keep reading of lay-offs but those never see to show up in the official unemployment numbers reported.
And of course, the Fed seems to be between a rock and a hard place.
Yellen is in China this week (fitting I guess for America's Independence Day).
Meanwhile, China has announced a reduction in exports of several precious metals used in high-end chip manufacturing.
btt
The gap between the real inflation and reported inflation make wages and income look better than they are.
The gap between the real inflation and reported inflation make wages and income look better than they are.
Trucking is in the toilet. Volume has collapsed compared to a few years ago. Not sure where these economic numbers are coming from.
“We keep reading of lay-offs but those never see to show up in the official unemployment numbers reported.”
Of course it could be shenanigans by this administration in how they count the numbers. But it could also be that our large economy is just absorbing the pain. There may not be enough of those layoffs to significantly affect the totals. Just like you can’t judge election results based on yard signs.
I believe there are mini recessions cascading through the economy already.
The equity markets aren’t as impacted because there is/was so much liquidity still in the market.
In the US there was an $8.2 trillion increase in base money supply since GFC. Then you have zero percent nominal borrowing cost for 10 of the last 14 years. Central bank balance sheets went from 8% of GDP in 2020 to 47% of GDP now.
That takes a while to deflate.
Again, explain what the inversion may mean for the economy. Thanks.
1. Expectations of future economic conditions: When investors expect a downturn in the economy, they tend to shift their investments towards safer assets, such as government bonds. This increased demand for longer-term bonds, like the 10-year Treasury bonds, drives their prices up and their yields (interest rates) down. Conversely, the demand for shorter-term bonds, like the 2-year Treasury bonds, decreases, causing their yields to rise.
2. Market sentiment and investor behavior: The inversion of the yield curve can also reflect market sentiment and investor behavior. When investors anticipate an economic downturn, they become more risk-averse and prefer to invest in safer short-term bonds rather than long-term bonds. This increased demand for short-term bonds pushes their yields higher than long-term bond yields.
3. Impact on borrowing and lending: Inverted yield curves can affect borrowing and lending in the economy. Banks and other financial institutions typically borrow money at short-term rates and lend it out at longer-term rates, earning a profit from the difference. When the yield curve inverts, it can squeeze bank profits because the short-term rates they pay are higher than the long-term rates they receive. This can lead to reduced lending activity and tighter credit conditions, which can negatively impact businesses and consumers.
4. Business and consumer confidence: Inverted yield curves can also impact business and consumer confidence. When investors are concerned about the economic outlook and expect a recession, it can lead to reduced business investment and consumer spending. This decrease in economic activity can further contribute to an economic downturn.
I understand all the points you are making—and they may explain mid-term rates (5 year, 10 year) but they do not explain truly long term rates—like 20 years.
Is anyone seriously expecting a twenty year recession?
Generally, longer-term bonds pay more than bonds with shorter maturities. When investors are pessimistic as to the future economy there is less demand for longer-term bonds and interest rates for those become less than that for shorter-term bonds.
A yield curve inversion - in which shorter-dated Treasuries trade at higher yields than longer-dated securities - has been a reliable signal of upcoming recessions. The 2/10 year yield curve has inverted six to 24 months before each recession since 1955, according to a 2018 report by researchers at the San Francisco Fed, offering only one false signal in that time.
Anecdotal, but I’ve noticed less traffic on the highways recently - both commercial and private. It started making a comeback after the lockdowns, but it seems to have ebbed.
Truckers say they haven’t seen it this bad since 2008-2009
Thank you and each one who offered an explanation.
No. I believe that those rates have been largely impacted by Fed intervention in the various long term debt markets.
Just consider mortgage rates in relation to the amount of MBS held by the Fed. And then look at the sharp increase in rates as the Fed has not been as active in the MBS market of late.
https://fred.stlouisfed.org/series/WSHOMCB
My only loans with any interest are mortgage - at 2 1/4 and 2 1/8 - with pretty low balances.
I'm making more interest in the 4-week bills than I'm paying interest out on the mortgages, so have no desire to pay off the loans early.
Our entire economy, including our money supply, is debt-based. Learning how to play the debt game can be beneficial, even though it will eventually sink the economies of the world and drive most into servitude to their financial masters.
I’m going to have to ask some of my friends who drive truck. Not that I don’t believe you - in fact I’m afraid you’re right.
We’re in a wartime economy! The government is spending hundreds of billions. They’re not merely sending money but equipment and everything related. This is what Democrats do to stimulate the economy, start another war. It’s what’s keeping us from recession. It’s propping up the market.
2. When investors anticipate an economic downturn, they become more risk-averse and prefer to invest in safer short-term bonds rather than long-term bonds. This increased demand for short-term bonds pushes their yields higher.
Something is NOT RIGHT here. In case #1, decreasing demand for short-term bonds causes their yields to rise. In case #2, increasing demand for short-term bonds causes their yields to fall.
That doesn't make sense!
Please explain!
Regards,
That amount of waste does not get spent on the same day. Once that flood slows down, the indicators will reflect that. Maybe just before the 2024 election. Honest reporting will clearly show that.
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