Posted on 08/16/2019 8:46:38 AM PDT by SeekAndFind
If you’ve been gleaning financial headlines, you may be asking, what is this “inversion of the yield curve” thing and why is it so scary?
An inverted yield curve marks a point on a chart where short-term investments in U.S. Treasury bonds pay more than long-term ones. When they flip, or invert, it’s widely regarded as a bad sign for the economy.
Getting more interest for a short-term than a long-term investment appears to make zero economic sense.
Go to any bank and you will likely get a lower interest rate on a 6-month CD than you would on a 5-year CD. The bank pays you less because you’re only giving up your money for six months instead of five years. But imagine if this were inverted and bank paid more for the 6-month than the 5-year CD.
Now think of the U.S. Treasury as a bank. On Wednesday, the Bank of Uncle Sam offered a two-year CD that pays more than its 10-year CD. That is to say, 2-year Treasury bonds were yielding 1.603% while 10-year Treasurys were yielding 1.6%.
As a consumer, you can see a similar trend at retail banks. The difference between what 6-month vs. 5-year CDs yield, while not inverted, has gotten a lot smaller. The trend is positive for consumers in some ways, with mortgage rates likely to come down further.
One reason inversions happen is because investors are selling stocks and shifting their money to bonds. They’ve lost confidence in the economy and believe the meager returns that bonds promise might be better than potential losses they could incur by holding stocks into a recession. So demand for bonds goes up and the yields they pay go down.
(Excerpt) Read more at cnbc.com ...
CNBC lost credibility in the year 2000.
Our bond market is being distorted by billions in foreign cash pouring in due to negative rates elsewhere. Our current economic data is solid. I am with Mohamed El-Erian on this topic: https://youtu.be/MzKLs8l9UPM
For questions like that, you must find Harry Truman’s famous one-armed economist!
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