yield curve partially inverts

at the moment, the 5-year treasury offers a lower yield than the 2-year treasury.

http://money.cnn.com/markets/bondcenter/

Bonds
Nov 28 12:30pm ET † Price Change Yield Yld Chng

2 yr 99 27/32 +2/32 4.32 -0.03
5 yr 100 26/32 +6/32 4.31 -0.04
10 yr 100 26/32 +8/32 4.39 -0.03
30 yr 111 9/32 +26/32 4.61 -0.05

And Lo, the Moon shall appear as Blood, and the Yield Curve shall turn over in it's Grave.

I didn't think we were supposed to do that (post same topic in two forums)

it's completely unacceptable to spam the boards. but if you have a topic that may pertain to more than one forum, it's ok.

i expect this thread to get good in-depth discussion in the economy forum, but i think it's important news, for the general discussion forum as well, though that thread would not doubt have less detailed economic discussion and more higher-level political discussion.

there's rarely a reason to post in more than 2 forums, and even at that, the two forums should not both be "high-level" forums like general discussion.

i think they are expecting a recession of some sort -- and it certainly feels like one is hanging around out there.

i.e. it's not that any one needs t be reminded gap is there -- people went mad for discounts because the public is still worried about the price of things.

I need to know.

it's some sort of egyptian symbol. khephra had it as his avatar. when he died suddenly and tragically of a deep vein thrombosis, many of us switched our avatars to this one.

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.

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 was charting the historical Federal Reserve overnight rates.

Six of the last eight recessions were preceeded by year over year rate increases of about 3.15% or better and there was never a time that a recession did not follow.

The median was 11 months, the minimum was 6 months and the maximum was 18 months.

Does anyone else think that rate hikes could cause a downturn?

from investment advisor martin zweig. his twin prime directives are "don't fight the tape" and "don't fight the fed".

don't fight the tape mostly means the market going down is a BAD time to put your money in the market. you might be putting your money in at the bottom, but who knows. until the tape strengthens, the risk isn't worth the reward.

don't fight the fed means that rate hike cycles are invariably followed by bear markets. the reasons are obvious. whatever profit and price expectations are built into the market prices BEFORE the rate hikes start turn out to have been overly optimistic once the series of rate hikes come to pass. this is practically guaranteed unless somehow the fed manages to OVER-signal more hikes than actually materialize, which is not very plausible. the rate hikes cost companies more money to borrow, and so hurts profits directly as well as hurting expansion efforts.

although some of the market dynamics maybe be temporary adjustments due to the reintroduction of the true 30-year bond. new issues had been suspended in 2001 under the theory -- even more bizarre now than it seemed at the time -- that we wouldn't have debt anymore(!), so what was called the "30-year" bond was actually by now a 25-year bond.

interesting that the yield on the new 30-year bond is lower than the 25-year bond. this suggests that treasury's "cost-cutting" debt management decision was even more stupid than we thought at the time!


Bonds
Feb 10 8:55am ET † Price Change Yield Yld Chng

2 yr 99 16/32 +1/32 4.63 0.00
5 yr 98 25/32 +2/32 4.52 -0.02
10 yr 99 27/32 +7/32 4.52 -0.06
30 yr 100 11/32 -10 9/32 4.47 -0.20