Treasury yield curve inverts

although a quick check at the markets shows it's backed off at the moment, but it will return to an inverted shape soon enough.
the 5-year first inverted relative to the 2-year a couple months ago; now the 10-year is inverting relative to the 2-year.


http://money.cnn.com/2005/12/27/markets/bondcenter/treasury_yields.reut/index.htm

Treasury yield curve inverts
Inversion is first since 2000, but there's some doubt whether this signals recession.
December 27, 2005: 6:26 AM EST


LONDON (Reuters) - The yield on the benchmark 10-year Treasury fell below that of two-year notes early Tuesday, inverting the yield curve for the first time since December 2000.

At 6:23 am ET. the 10-year note yielded 4.393 percent while the two-year note yielded 4.396 percent.

The inversion of the yield curve is rare because investors tend to demand higher yields on longer-dated bonds to compensate for the risk of higher inflation later.

"This clearly suggests we are very close to the end of the tightening cycle...and is not an indication of a recession," said Michael Rottmann, strategist at Hypovereinsbank.

"I think the Fed will raise interest rates by another 25 basis points to 4.50 percent which will be the peak for this cycle," he said.

I fear Mr. Rottmann is full of it.

i also agree that this is pretty much the end of the tightening cycle; MAYBE there's a second hike looming, probably after a break though. i also agree that the system is awash in liquidity. there's long been too much capital with no good place to invest it, and that is one reason why china is putting its money into the long u.s. bonds.

however, i cannot casually dismiss the prospect of recession. growth is good but mostly in the energy and defense sectors. the rest of the consumerism-based economy has been propped up by home equity borrowing due to cheap interest rates.

now that the cheap interest rates are behind us, consumer demand will weaken. now that iraq is a less 'popular' war than it once was and even shrub is talking troop reductions, the energy and defense sectors will still do great, but they won't continue their recent acceleration.

it's kinda hard to see where the growth is really going to be coming from, and easy to see where sectors will contract.

i'm not "predicting" a recession just yet, but i do think an inverted yield curve is an ominous portend.

I think economists are over-thinking this situation.

My belief (note that I'm not an educated economist, so their views might be more accurate) is that the situation is much simpler:

Investors think that, between 2 years from now and 10 years from now, interest rates will be lower than they are between now and two years from now. Which means that they believe that the Federal Reserve will stop raising rates or will slowly begin to lessen them.

Not a big deal, though the inverted 2-year/10-year is kind of rare.

to believe this, you have to believe that the fed is going to cut interest rates at some point, and to believe that that's going to happen without a recession. thing is, recessions, or at least the threat thereof, are the primary reason for the fed to cut rates. so you kinda have to believe that there's going to be a threat of a recession without a recession actually materializing.

kinda threading the needle.

if a recession is all that happens.

If there was ever a "Perfect Storm", 2006 is it. There are SO many things that will knock over this fragile House of Cards.

The economy is spiraling down. Jobs continue to be outsourced. Layoffs are still continuing. The housing sector, which accounts for about 36% of running the economy, is starting to falter. This should make them sweat, more than anything else. Transfer payments are going down. Social programs are drying up which will push the poorest out on the street. Health insurance is still spiraling insanely upward. Our debt is beyond belief. We borrow $2,000,000,000 billion dollars a day, just to service our debt. Our balance of trade is widening, it's at $53 billion.

I can't understand why Mr. Rottmann thinks that an interest rate of 4.5% will "be the peak for this cycle". Greenslime has already made it clear they are going to continue with interest rate hikes. It won't stop at 4.5.

Plus, the money supply M1 and M3 have been increasing a lot. This is not good news. They could be starting some kind of hyper-inflation,

Once those layoffs come into play, it will all be over.

We'll be discussing much worse than a "recession" when those closings begin.

Over the past two years, it has clearly outperformed:

http://finance.yahoo.com/q/bc?t=2y&s=HAL&l=on&z=m&q=l&c=&c=%5EGSPC&c=%5EIXIC&c=%5EDJI

I was referring to the likelihood that an America that long tolerates this sort of corruption will disintegrate.

Sure, there's lots of money to be made in the short term, but that money will be nearly worthless when our little experiment in representational plutocracy falls to pieces.

I do agree with you, though.

An analyst on CNBC said that all six inversions during his investment career have led to some sort of recession, but that six was not enough of a statistical sampling to show that they all do and felt that this one would not do the same.

6 out of 6 is almost as solid as macroeconomic statistics get.

economists usually only consider post-wwii anyway, and just how many recessions have we had since then?
besides, once you start getting larger numbers, economists start to dismiss the old data because the economy then was so different, we didn't have this structure or that safety feature or we were so manufacturing-based then and no now, blah-bitty blah....

Are you second-guessing the all-powerful, all-knowing gods of CNBC?



Splitter!!









;)

burst for the last several months and just as recently as last week finally admitted a 'slowdown' as well. I don't trust them, they pander to their audience. IMO.

Internet stocks are "special." CNBC is a fucking group of morons.

:nopity:

that's some swell happy talk, more of a song and dance really.

Could this mean that there is excess demand for 2 year bonds currently? can anyone easily see the sales volumes? perhaps more people are buying 2s than 10s, there is an auction involved in setting these rates right?

I recall reading that recessions pretty well always are preceded by inverted yield curves. However, it may be that inverted yield curves do not invariably lead to recessions. But, it is a risky sign.

Bush presidencies always precede recessions as well.

On edit: I meant, recessions always follow Bush elections/selections, of course.