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Treasuries Buying Wave Triggers First Curve Inversion Since 2007 "considered a reliable harbinger of recession" Rate Topic: -----

#1 User is offline   That_Guy 

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Posted 24 March 2019 - 10:07 AM

Treasuries Buying Wave Triggers First Curve Inversion Since 2007
By Emily Barrett and Katherine Greifeld
March 22, 2019, 9:49 AM

(too short to excerpt)


The Treasury yield curve inverted for the first time since the last crisis Friday, triggering the first reliable market signal of an impending recession and rate-cutting cycle.

The gap between the three-month and 10-year yields vanished as a surge of buying pushed the latter to a 14-month low of 2.416 percent. Inversion is considered a reliable harbinger of recession in the U.S., within roughly the next 18 months.

Demand for government bonds gained momentum Wednesday, when U.S. central bank policy makers lowered both their growth projections and their interest-rate outlook. The majority of officials now envisages no hikes this year, down from a median call of two at their December meeting. Traders took that dovish shift as their cue to dig into positions for a Fed easing cycle, pricing in a cut by the end of 2020 and a one-in-two chance of a reduction as soon as this year.

“It looks like the global slowdown worries have been confirmed and the market is beginning to price in Fed easing, potential recession down the road,” said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co. “It’s clearly a sign that the market is worried about growth and moving into Treasuries from riskier asset classes.”

The wave of buying that’s cut the 10-year yield by nearly 20 basis points in the last couple of days has global catalysts, too. Weaker-than-expected European factory data that helped drive benchmark German yields back below zero on Friday also supported the move.

An upended 3-month to 10-year curve is widely favored as an indicator that the economy is within a couple of years of recession. And Friday’s move is an extension of the inversion at the front end of the curve that happened in December. The gap between the 2-year and 10-year yields has also narrowed, to around 11 basis points.

That said, many downplay the curve’s predictive powers. Some argue that technical factors have distorted the curve’s shape and signaling capacity, particularly as crisis-era policy has tethered yields for the past decade. A downturn may be drawing near after what has been close to the longest expansion on record, however the market provides no precision on when it will happen.

While the 3-month to 10-year spread “has a relatively decent track record of predicting recessions, it suffers from a timing problem,” said TD Securities U.S. rates strategist Gennadiy Goldberg. “Its inversion can suggest a recession occurred six months ago or will occur two years from now.”

LINK
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#2 User is offline   USMCforever60 

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Posted 24 March 2019 - 10:37 AM

Udder Horse-S#$%, where is it written that the public can buy back its own debt????? Articles like this makes me yearn for the days when you could trust govt and all that encompases.
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#3 User is offline   Severian 

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Posted 24 March 2019 - 11:13 AM

And there goes T_G, actually rooting for bad news for millions of his fellow Americans just so it hurts his favorite enemy, Trump. Truly sick and repulsive.
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#4 User is offline   Natural Selection 

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Posted 24 March 2019 - 11:25 AM

If I've learned anything from playing the market, it's that news, both good and bad, trumps technical analysis.

There are any number of events that could disrupt current trends in the market.

We all know why TG posted this opinion piece, though. The Mueller report didn't touch Trump so now he's desperately seeking ANYTHING to keep his ridiculous fantasy alive.
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#5 User is online   Taggart Transcontinental 

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Posted 24 March 2019 - 11:44 AM

OMG We are all going to DIE!!!!! Sell the women and children! Buy pork bellies! We are Screwed!
This nonsense brought to you by the same people that wanted the POTUS thrown out of office for "collusion", now they are 2 years from a new election and they MUST throw our economy into the gutter to win. That's the only way it happens.

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#6 User is offline   Coach 

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Posted 24 March 2019 - 12:06 PM

A broken clock is right twice a day.
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#7 User is online   Taggart Transcontinental 

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Posted 24 March 2019 - 12:23 PM

View PostCoach, on 24 March 2019 - 12:06 PM, said:

A broken clock is right twice a day.


Not always, sometimes the broken clock is never right, depends what is broken :)
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#8 User is offline   Coach 

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Posted 24 March 2019 - 12:24 PM

There is no argument that Europe, China and the socialist global racketeers have screwed up their economies and in the process it affects our economy. That does not mean that the United States is going into a major recession because of President Trump. The so called great recession was caused by reckless credit and mortgage policies initiated by progressive/socialists going all the way back to Jimmuh Carter. Auntie Maxine was also a major player. In reality the progressives implemented rules which mandated that banks and financial institutions make loans to poor credit risks, especially minorities. The threat was clear, do what the progressives demanded or face their wrath.

China needs the United States as a trading partner much more than we need them. That is what the President knows as do the Chicoms.

One question, which socialist powerhouse nation is it we should emulate ?
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#9 User is offline   Coach 

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Posted 24 March 2019 - 12:26 PM

View PostTaggart Transcontinental, on 24 March 2019 - 12:23 PM, said:

Not always, sometimes the broken clock is never right, depends what is broken :)



I failed to recognize that the clock in question blew its hands off a long time ago. Say third grade.
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#10 User is offline   Severian 

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Posted 24 March 2019 - 12:34 PM

View PostCoach, on 24 March 2019 - 12:26 PM, said:

I failed to recognize that the clock in question blew its hands off a long time ago. Say third grade.

A digital clock with most of the display segments burned out.
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#11 User is offline   Natural Selection 

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Posted 24 March 2019 - 12:54 PM

View PostCoach, on 24 March 2019 - 12:06 PM, said:

A broken clock is right twice a day.


Sometimes a clock simply fails to function properly due to it's own limitations.

A Sundial on a cloudy day, for example.
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#12 User is online   Bookdoc 

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Posted 24 March 2019 - 12:54 PM

View PostSeverian, on 24 March 2019 - 11:13 AM, said:

And there goes T_G, actually rooting for bad news for millions of his fellow Americans just so it hurts his favorite enemy, Trump. Truly sick and repulsive.

It shouldn't surprise you-libturds ONLY care about getting power and enriching themselves (except the mom's basement commandos) and could care less about the American people. :coffeenpc:
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#13 User is offline   Martin 

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Posted 24 March 2019 - 02:13 PM

Thank you for the interesting article and the link, That Fool. With the moderator's permission, I will add a little commentary.

When interest rates go up, bond prices go down. The Fed's prediction of two interest rate hikes in 2019 naturally reduced the demand for Treasuries. How much a bond stands to fall in price is measured by a figure called "duration", which is figured from its interest rate and time to maturity. The duration of the 6-month Treasury is 0.488 and the duration of the 10-year T-note is 8.667 years. Hence, an interest rate hike of one percentage point would reduce the price of the 3-month T-bill by 0.5% while it would reduce the price of the 10-year by 8.7%. Yet, the yields are almost equal, 2.46% and 2.49, respectively.

According to the link from Bloomberg, "The gap between the three-month and 10-year yields vanished as a surge of buying pushed the latter to a 14-month low of 2.416 percent."
The announcement of no interest rate hikes on the part of the Fed this year means that the risk of buying them is substantially less. So, more people bought them, which bids up the price. Yet, the higher the price for a given bond, the lower its yield. The yield on the 3-month did not move up to the yield of the 10-year, the ten-year moved down to the level of the 3-month. Whether or not this forecasts a recession depends on the reasons investors bought 10-year T-notes. If the buyers were mostly pension plans, that reflects the pension managers' intention to build up their pension plans with a supposedly risk-free long term investment.


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#14 User is offline   BerkeleyUnderground 

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Posted 24 March 2019 - 06:48 PM

Anybody think AOC will ever get a question about this?

I mean, she does have a degree in Economics.

This post has been edited by BerkeleyUnderground: 24 March 2019 - 06:57 PM

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#15 User is offline   Rock N' Roll Right Winger 

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Posted 24 March 2019 - 07:06 PM

View PostBerkeleyUnderground, on 24 March 2019 - 06:48 PM, said:

Anybody think AOC will ever get a question about this?

I mean, she does have a degree in Economics.

:lol3:
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#16 User is offline   GrimV 

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Posted 24 March 2019 - 09:11 PM

ZOMG! THE YIELD CURVE INVERTED! THE YIELD CURVE INVERTED! DO YOU KNOW WHAT THIS MEANS? IT IMPLIES A 25-30% CHANCE OF A RECESSION OVER THE NEXT YEAR OR SO! AND A 25-30% CHANCE IS NEARLY A 100% CERTAINTY! IT'S HAPPENING, PEOPLE! WHICH MEANS WE'RE ALL GONNA DIE! WHICH TOTALLY SUCKS BECAUSE I'VE ALREADY DIED TWICE SINCE TRUMP TOOK OFFICE! ONCE FOLLOWING THE TAX CUTS, AND ONCE FOLLOWING NET NEUTRALITY! I'M NOT SURE HOW MUCH MORE DEATH THIS OLD BODY CAN TAKE!

This post has been edited by GrimV: 24 March 2019 - 09:14 PM

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#17 User is offline   usapatriot 

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Posted 24 March 2019 - 09:15 PM

The Fed under Powell has been responsive to pressure. Some of it from Trump, but most of it from the big players on Wall Street. Powell already radically and quickly changed policy in late December when the market went to crap due to his mid-December statements that the Fed would continue to increase interest rates in 2019 at least 2 - 3 times and sell $50 billion in bonds (needed due to 8 years of quantitative easing adding up to $4 trillion to prop up Odumbo's pitiful economy) off their balance sheet each month. In late December, he said the Fed would be very flexible based on what the data tells them. Then, by late January, Powell states the Fed might have one interest rate hike in late 2019 and they would stop selling $50 billion in bonds per month in late 2019. Then, this week, Powell states there won't be any rate hikes in 2019. If the market continues to take a dive in the next couple weeks, I would not be surprised Powell ends selling $50 billion of bonds on their balance sheet per month much earlier (probably this summer). I saw a report that indicated selling $50 billion in bonds each month effectively raises the interest rates companies have to pay for loan an additional 2% on top of the current 2.5% Fed rate. Stopping this Fed bond sell-off early will have an immediate effect on reducing the cost of borrowing, which will in turn spur more borrowing and more economic activity. Due to this likely scenario, plus the excellent analysis above by Martin, I do not believe that the Treasury yield curve inverted indicates a recession between 6 months and 2 years is inevitable.

All this being said, I want everyone here on RN to note that I am predicting and guaranteeing a recession will occur sometime in the future. And when it does happen (whenever it does occur), I will pompously claim that I predicted it and will sell millions of books on how I predicted it and when I will predict the next one to occur. :P
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#18 User is online   Tikk 

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Posted 25 March 2019 - 10:06 AM

View PostGrimV, on 24 March 2019 - 09:11 PM, said:

ZOMG! THE YIELD CURVE INVERTED! THE YIELD CURVE INVERTED! DO YOU KNOW WHAT THIS MEANS? IT IMPLIES A 25-30% CHANCE OF A RECESSION OVER THE NEXT YEAR OR SO! AND A 25-30% CHANCE IS NEARLY A 100% CERTAINTY! IT'S HAPPENING, PEOPLE! WHICH MEANS WE'RE ALL GONNA DIE! WHICH TOTALLY SUCKS BECAUSE I'VE ALREADY DIED TWICE SINCE TRUMP TOOK OFFICE! ONCE FOLLOWING THE TAX CUTS, AND ONCE FOLLOWING NET NEUTRALITY! I'M NOT SURE HOW MUCH MORE DEATH THIS OLD BODY CAN TAKE!

https://i.makeagif.com/media/9-01-2015/9WYUw1.gif
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#19 User is offline   corporal_little 

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Posted 25 March 2019 - 08:11 PM

View PostMartin, on 24 March 2019 - 02:13 PM, said:

Thank you for the interesting article and the link, That Fool. With the moderator's permission, I will add a little commentary.

When interest rates go up, bond prices go down. The Fed's prediction of two interest rate hikes in 2019 naturally reduced the demand for Treasuries. How much a bond stands to fall in price is measured by a figure called "duration", which is figured from its interest rate and time to maturity. The duration of the 6-month Treasury is 0.488 and the duration of the 10-year T-note is 8.667 years. Hence, an interest rate hike of one percentage point would reduce the price of the 3-month T-bill by 0.5% while it would reduce the price of the 10-year by 8.7%. Yet, the yields are almost equal, 2.46% and 2.49, respectively.

According to the link from Bloomberg, "The gap between the three-month and 10-year yields vanished as a surge of buying pushed the latter to a 14-month low of 2.416 percent."
The announcement of no interest rate hikes on the part of the Fed this year means that the risk of buying them is substantially less. So, more people bought them, which bids up the price. Yet, the higher the price for a given bond, the lower its yield. The yield on the 3-month did not move up to the yield of the 10-year, the ten-year moved down to the level of the 3-month. Whether or not this forecasts a recession depends on the reasons investors bought 10-year T-notes. If the buyers were mostly pension plans, that reflects the pension managers' intention to build up their pension plans with a supposedly risk-free long term investment.



Exactly
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#20 User is offline   GhostOfAndrewJackson 

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Posted 18 April 2019 - 09:55 PM

It may be of interest to note that Valueline recently increased their equity allocation from 55-65% to 60-70%. Their tactical asset allocation timing has always been fairly good. Note, this is entirely different than their individual selections and other services.
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