patrick.net

To quote one of our popular posters here: "Just following the excellent trend line started from the Obama days".

Predicted 10 of the last five recessions....

Fun tool. Move the vertical bar on the stock market chart to see what yield curve looks like at market tops. Or play the animation. It flattens out but doesn't go very inverted. With exceptions such as when short term rates were way above long rates when Carters appointee Volcker was killing inflation.

The thing that's different here is how low rates are in general. But that's presumably reflecting the amount of debt out there among other things.

https://stockcharts.com/freecharts/yieldcurve.php


NuttBoxer says

Seems like more than a few people are getting nervous about getting their loans paid back...

I don't consider myself anything like an expert (not that I was before - just specialized within a little corner that was interest rate related - long ago).

Interesting to observe that at the very short end of the curve interest rates were near zero for most of the Obama years, starting with the crash. Maybe now, it's not so much that lenders are getting nervous, and more that they are actually making more business loans. Also perhaps not allowing a "carry trade" that was being done for several years.



I would agree that caution is warranted, but then I've thought that ever since our Orange leader was elected.

I don't worry about the "inverted yield curve".

I remember the interest rates rising from 8.5% above 13% so I still love stocks.

I always love stocks anyway; notice those young people who have lousy jobs with iPhones in their pockets?

In a week or so Apple will pay me another dividend over $1000 bucks. Yield curves are not going to stop this from happening.

clambo says

I always love stocks anyway; notice those young people who have lousy jobs with iPhones in their pockets?

In a week or so Apple will pay me another dividend over $1000 bucks. Yield curves are not going to stop this from happening.

Apple has peaked at the point in their history when they're putting out some of the shittiest, least innovative products to date. But I'm sure that has nothing to do with where they're stock is going in the future if yield curve continues it's trend, and more risk-averse people pull out of risky markets.

NuttBoxer says

Apple has peaked at the point in their history when they're putting out some of the shittiest, least innovative products to date. But I'm sure that has nothing to do with where they're stock is going in the future if yield curve continues it's trend, and more risk-averse people pull out of risky markets.

Apple may not be making new innovations to please some since there is no new form factor for a computer possible; they are all made already.

Hand held, tablet (3 sizes), various laptops and desktops. What other computer shape/size is even possible?

I don't own one, but the iPhone 10 (called X) is an amazing piece of equipment. I use a cheapo motorola lately myself but I love to see those kids salivating over them.

Apple still makes a ton of money and people love the brand.

Interest rates will have to go up more for people to leave stocks for crummy bonds.

clambo says

Interest rates will have to go up more for people to leave stocks for crummy bonds.

Yah this is the real issue. The more people who want something the more valuable it is. Right now, people with money to invest are looking at bonds and saying “yuck!” They’ve been saying that for a couple years now as the stock market increased 50%.

Apple is going nowhere. They're an extremely well run company. They make good- to great products at a premium price that people seem willing to pay (and I own a Pixel 2xl). Christ, their average PE over the past 5 years is something like 15, which almost makes them a value play. You might be buying them at a peak right now, but if you're long for 5 or more years you'll get plenty from AAPL.

Evan F. says

They make good- to great products at a premium price that people seem willing to pay

We all use MAC Pro's at my work, and while I like the OS and touchpad much better than any laptop I've used previously, their quality is for shit. My return key has a crack down the middle of it, and another co-worker had to replace his because of bad HDD sectors after only two years. And no one here likes the new Pro's, the touchpad is too big, and interface is much less intuitive than before.

And then there's all the proprietary shit they do. Ever tried backing up an Apple product without using time capsule? Or want to use that usb cable that you've kept in stellar condition from a few years back? Or how about plugging an HDMI cable in?

I WAS a big fan of Apple, until I started using their products a lot...

Unloved Part of Treasury Curve Keeps Signaling a U.S. Recession

Gap between 1- and 5-year yields negative even after Fed shift - Inversion means banks less incentivized to lend: TS Lombard

Even as the Federal Reserve’s dovish pivot eases concerns over narrowing Treasury spreads and the recessionary signals they harbor, one section of the yield curve is indicating that the policy shift may be too little, too late.

The gap between 1- and 5-year yields turned negative late last year, around the time when the Federal Reserve delivered its fourth interest-rate increase of 2018 and penciled in two hikes for 2019. The gap has largely been inverted ever since, plummeting to as low as minus 18.8 basis points on Jan. 3, and trading around minus 7.3 basis points Monday.



The 1-to-5-year spread is as good an indicator of economic slumps as the more commonly monitored 1-to-10-year gap, according to Steven Blitz, chief U.S. economist at TS Lombard, a London-based research provider. The curve out to the 5-year yield may be as predictive as the spread to the 10-year because of the wide array of lending that occurs on terms of 5 years or less, including business, personal, auto, and construction loans, he said in an interview from New York.

“The whole curve doesn’t invert at once or in one fell swoop,” Blitz said. “If in the next month or two U.S. economic data deteriorate further, yields at the longer end of the curve come down and eventually deliver the more traditional inversion out to the 10-year yield.”

Demand for the belly of the curve remained robust at Monday’s $41 billion auction of 5-year notes. The highest yield at the sale was 2.489 percent, just under the prevailing market rate at the bidding deadline of 1 p.m. in Washington, while the bid-to-cover ratio of 2.40 was well above the 2.36 percent average of the prior six offerings at that tenor.

While not as closely followed as other spreads, the 1-to-5-year gap demonstrated its predictive power ahead of the last U.S. recession. In November 2005, the spread fell below zero. It bottomed at around minus 61 basis points in March 2007, in the run up to the financial crisis and ensuing economic downturn.

Other spreads may be more popular, yet the 1-to-5-year gap is “worth keeping an eye on because it does reflect an inversion in the front end of the curve,” said Brean Capital fixed-income strategist Scott Buchta.

Better Measures

Buchta regards the 3-month to 10-year, 2-to-10-year, and 5-to-30-year spreads as more reliable indicators of impending recessions, however. The 1-year sector is “no man’s land and an unloved part of the curve where there tends to be a lot of noise” that can be distorted by supply and demand imbalances, he said.

Those spreads were trading at about 21, 15 and 55 basis points Monday.

For his part, Blitz still sees a U.S. recession as avoidable.

“The Fed’s current plan, eliminating forward expectations of rate hikes and ending balance-sheet reduction, may yet flip the whole curve back to positive and thereby keep the recession at bay,” he said. “That is their hope. Ours, too. We will see whether it works.”

https://www.bloomberg.com/markets/fixed-income

Yes, I was looking at GuruFocus.com, and it shows the difference between the 10 year Treasury note rate and the 1 year Treasury note rate at about 0.1%.

I believe the last 7 recessions started when that difference (or "yield curve") is at 0%. So there is a good chance there will be a recession in 2019.