T10-2Y Treasury Yield - Monthly ChartI tried to predict Treasury yield cycle using Trent lines.
I would like to see if the treasury yield follow the cycle along the trend lines.
Yieldcurve
Bond Market Signals Potential Trouble for the Federal ReserveIn recent weeks, the bond market has been sending a strong signal to the Federal Reserve: it may be making a serious mistake. The yield curve, which measures the difference in interest rates between short-term and long-term bonds, is currently more inverted than it has been since the early 1980s.
An inverted yield curve occurs when short-term interest rates are higher than long-term interest rates. This can be a cause for concern because it can indicate that investors are expecting economic growth to slow in the future. When investors expect the economy to slow, they are less likely to lend money for long periods of time, leading to higher interest rates on short-term bonds and lower interest rates on long-term bonds.
The current yield curve inversion has many experts worried. In the past, an inverted yield curve has often been a reliable predictor of a recession. In fact, every recession in the past 50 years has been preceded by an inverted yield curve.
One reason for the current inversion may be the Federal Reserve's recent interest rate hikes. The Fed has raised interest rates several times in recent years in an effort to prevent the economy from overheating. However, these rate hikes may have had the unintended consequence of slowing economic growth.
Despite the potential risks, experts believe that the current yield curve inversion may not be as concerning as it seems. They argue that other factors, such as the strong job market and low unemployment rate, suggest that the economy is still in good shape.
In the end, only time will tell if the bond market's concerns are justified. However, the Federal Reserve will need to closely monitor the situation and be prepared to take action if necessary to prevent a potential recession.
2y 10y spread re-steepeningAfter inversion, re-steepening signifies the impending materialization of the stress in the financial system and economy. Looks like this is just the beginning of this downturn and imo we're headed for a massive recession.
Yield Curve Inversion Continues: More Pain Ahead Later?This post will provide a quick macro update concerning the yield curve inversion in US bond markets, which have often (though not always) been followed by a bear market in equities.
Note the various yield curve inversions in the 10-2 Treasury yield. This compares the 10Y US Treasury yield with the 2Y US Treasury yield , and when the 2Y yield exceeds the 10Y yield, the curve inverts (the result of 10Y - 2Y is a negative number).
The yield curve has now become inverted for the second time this year. The inversion is deepening, and it's been 10 consecutive days of inversion territory. The inversion is entering its 3rd week of the 10s-2s being inverted.
This is starting to exceed the inversion in 2005-2006 that lead to the 2 year bear market b/w 2007-2008 and it's approach about 1/2 the depth of the inversion in 2000, which was a severe bear that led to the NDC falling 70% over 2 years.
The chart above allows an easy visual comparison between prior inversions (labeled by date) and the current inversion.
The black line on the chart represents the Nasdaq 100 NASDAQ:NDX , also tracked by the NASDAQ:QQQ ETF traded on US securities exchanges.
The current inversion presages a higher likelihood of more pain in equities and other risk assets . An inversion does not necessarily lead to an immediate market decline as history shows, but it tends to lead to recession, which in turn is associated with extended bear markets (rather than a more minor 1-3 month correction as was seen with the Covid crash in 2020).
There was a minor inversion between the 10s-2s Treasuries in March 2022, 3 months ago, but that one only lasted 2 days. The current inversion has lasted now for about 2 weeks and looks likely to continue.
The current inversion has become more deeply negative than even the 2006 inversion, which presaged a severe-2 year bear market associated with the Great Financial Crisis. But so far, it only approaches half the depth of the 2000 inversion, which presaged a different but severe 2-year bear market that saw the Nasdaq lose 70% of its value (albeit with several powerful multi-week / month bear rallies interposed in between major declines).
S&P 500 / M2 Money Stock, George Tritch's CycleNow we have a period of high inflation that, in my opinion, will continue for some time. Even if it falls (as the M2 money stock decline points out), we may have a second reversal wave of inflation during the revival after the current bear market. For this reason, a lot of people are waiting for a pivot, which, according to them, will mark the low. This statement is wrong. After pivots, we usually observe the biggest drops on the S&P 500. Similarly, with yield curves - they are inverted, which is a very strong bearish signal. At this point, I invite you to look at the related ideas about the 2008 analogy.
The above chart shows the value of the S&P 500 index divided by the M2 Money Stock, which in general presents the situation on the money market - the amount of money in the economy. So we can see how the share prices relate to it. In addition, I added George Tritch's cycle (arrows), which has been assigned the most lows and highs in the past. Shaded arrows indicate less important turning points for this chart. The timing is more important than my projected path; it is only for visualization. The bottom of the current bear market should be in 2023. The next bull market with a high around 2026 should be less generous than the last. The major low of the actual cycle should be around 2032.
And that's all. Enjoy.
T10Y3M: Recession Still FarThis chart suggests that the coming recession will be anywhere from Q4 next year to Q4 2024 which is much later than what the 10 minus 2 year chart could be saying. There's also a possibility that the recent inversion is a false signal but unlike the 1998 fakeout, it went deeper and is much more likely a legitimate signal.
Why is the S&P500 ready to go short again?Why is the S&P500 ready to go short again?
This question can't be answer, I'm not a magician and no one will know what the market is going to do, but let's see what's giving me the hint of the short idea.
Let's start from the Real GDP .
We're going to consider the Real GDP which I'll be calling GDP during the post.
After doing some research you can see how the S&P is directly correlated with the GDP, and that the GDP is directly correlated with the S&P, if one goes down in most cases the other one goes down and vice versa. If we lag the GDP by 6 months, we can see how over 80% of the times if the GDP goes in a direction, within 6 months will be followed by the S&P.
There is only one scenario where we're not interested into trading, which is the ones where the GDP goes down and the S&P goes up. This is the most important rule in analyzing the market.
If we want to see how the S&P is going to move than we have to predict the GDP, how can we predict the GDP?
By looking at the Macroeconomics and Microeconomics data.
In this post I'll only take into consideration the US Yield Curve otherwise the post is going to be too long and y'all lazy people won't read it. According to Investopedia, the yield curve graphs the relationship between bond yields and bond maturity. More specifically, the yield curve captures the perceived risks of bonds with various maturities to bond investors.
The U.S. Treasury Department issues bonds with maturities ranging from one month to 30 years. As bonds with longer maturities usually carry higher risk, such bonds have higher yields than do bonds with shorter maturities. Due to this, a normal yield curve reflects increasing bond yields as maturity increases.
However, the yield curve can sometimes become flat or inverted. In a flat yield curve, short-term bonds have approximately the same yield as long-term bonds. An inverted yield curve reflects decreasing bond yields as maturity increases. Such yield curves are harbingers of an economic recession.
The S&P is also in a bear market since it's lost the 20% from its highest point and once our fundamental analysis is done, we can move on the technical part, it's not useless but can give us a good timing.
Here in the chart, you can see the first cup and the second cup which are giving us the first hint of a continuation in down trend. Obviously, we need more confirmations but that's a first suggestion of what's going to happen.
I know it's a short and quick post, but I'll update this or create a new post once I understand how the ideas section of TradingView works :)
Good luck traders!
Inflation & Interest Rate Series – Below 5.3% is Crucial for CPIContent:
• Why CPI must be below 5.3%?
• Can we invest or trade or hedge into inflation?
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
Stay tuned for our next episode in this series, we will discuss more on the insight of inflation and rising interest rates. More importantly, how to use this knowledge, turning it to our advantage in these challenging times for all of us.
Micro 5-Year Yield Futures
1/10 of 1bp = US$1 or
0.001% = US$1
3.000% to 3.050% = US$50
3.000% to 4.000% = US$1,000
See below ideas on the previous videos for this series.
Four decades of downtrend has broken - Yield / Interest RateAll the fixed tenure yields have broken above their four decades of downtrend. - 2yr, 5yr, 10 yr & 30yr
To note, the shorter end, the fixed 2 year tenure yield is climbing faster than the longer end, the U.S. fixed 30 year tenure government bond yield.
The year closing, it will be crucial to determine the trend transition; from this long-term downtend to uptrend.
The yield curve has inverted, how to overcome this?Content:
• Difference between interest rate and yield?
• Why it is important to note of yield curve inversion?
• How to tell when Yields are inverted?
• What is the long-term trend for interest rates and yields
• How to manage a rising yield?
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• Our mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
1. Difference between interest rate and yield?
i. Interest rates are a benchmark for borrowers and
ii. Yields are for lenders. For eg. investors to the U.S. government
iii. Both interest rates and yields move in tandem together
3. Why is it important to note yield inversion?
i. For eg. - when the return on a 30-years yield is lower than the 2-year yield, that indicates a
ii. For lenders or investors – a pessimistic outlook, a reluctance to commit their money to the longer-term bond, they prefer short-term deposits as the market is unclear in the long-term.
iii. For borrowers – most individuals or companies have shorter-term borrowing, for eg a 2 years fixed rate or a bridging loan. When the yields are inverted, suddenly they find them paying more on interest rates repayment.
Since interest rates and yields move in tandem, expect the shorter-term lending rates to go higher. This will hurt companies and individuals who have higher leverage items on their books.
If you are into shorter-term trading, do look into the market with live feed data.
I am starting an inflation series, in the next video tutorial, we will discuss why inflation is happening not just in U.S. but all around the world.
Micro 10 Years Yield Futures
0.001 = US$1
3.488 = 3488 x US$1 = US$3,488
3188 to 3488 = 300 x US$1 = US$300
Yield cruve 10-2 vs BTCAn inverted yield curve instead slopes downward and means that short-term interest rates exceed long-term rates. Such a yield curve corresponds to periods of economic recession, where investors expect yields on longer-maturity bonds to become even lower in the future.
Moreover, in an economic downturn, investors seeking safe investments tend to purchase these longer-dated bonds over short-dated bonds, bidding up the price of longer bonds driving down their yield.
The yield curve is turning around - implications?The yield curve seems to be turning around, in the 2006 - 2009 it meant that the Fed funds rate soon topped, that equities, inflation and treasury yields went down and unemployment went up.
Will it be the same this time?
USD CommentaryHope this idea finds you happily making a fortune today!
The epic rally in the dollar has displayed appreciation relative to all other currencies within the last 12 months.
Parity with the Euro: 1 Euro = 1 USD
Canadian Dollar CAD -2.5%
Australian Dollar AUD -6.1%
Swiss Franc CHF -6.6%
New Zealand Dollar NZD -9.8%
British Pound GBP -11.6%
Japanese Yen JPY -16.7%
Havoc for gold bulls:
But Zen? Isn’t a strong dollar good for the nation?!
‘ Good ’ is relative.
>A strong dollar makes imports cheap, and exports more expensive.
>This is the reason we have seen a steep drop in the rate of growth within the ISM Manufacturing Purchasing Manager Index.
>Currently at a value of 52.8, so yes we are in growth mode, but the rate of growth has sharply dropped
Let’s not forget the inflation woes domestically as purchasing power of consumers sharply drops.
Why is the dollar mooning?
>It is no different then the crypto yield farming bonanza of yesteryears. The market is chasing yield. However, unlike degens risking it all, the dollar is the global reserve currency and American bonds are backed by the greatest empire, the USA baby!!
>When the Federal Funds rate is raised by the Chairman Powell, the Government Bond Yield rises.
When the yield rises there is demand for the dollar to capitalize on this yield.
Bloomberg provided additional context through highlighting the ‘Dollar Milkshake Theory’ of Brent Johnson of Santiago Capital. Here is a summary:
1. All currencies are terrible fiat.
2. The dollar is slightly better because it’s the global reserve currency used the most. i.e. ‘the tallest midget’
3. When the Fed stops making dollars — the froth rises to the top of the “milkshake”— demand for existing dollars goes up.
Jamie Dimon (JPM) was in an interview forecasting the drop in growth last year, which ended up materializing. He said, with the inflation onset coming JPM were preparing in advance by essentially having a large position in the greenback. It sounds counter-intuitive to be long the dollar when inflation is high, however the logic is sound and the dollar has indeed outperformed all other currencies.
When it comes to technical analysis some are claiming we potentially are going to ‘ double top ’:
This would be an extremely bearish reversal if it were to materialize however, the underlying fundamental strategy the Fed is laying out would most likely have to change as well. The Fed at this point vocally intends to have further rate increases which will push yield, hurt growth and strengthen the dollar. Is a double top possible? Yes. Do I think it will happen? ... My crystal ball is foggy .
That is essentially asking, will the Fed take on a recession to wipe out inflation? I do not know. They are the masters of double speak ( soft landing ) right now.
If the dollar were to breakout we can see R3 would most likely be a pivot point.
Playing that breakdown in the dollar while being potentially long gold, equities or crypto could be lucrative in a short swing. Essentially, seek to make a tailwind out of a headwind.
Equities are likewise having a hard time dealing with this sky-high dollar.
Let me know your thoughts mates! If I missed something important share it with the community so we can grow together.
Yield curve inversion cyclesUS10Y treasury yield minus US02Y treasury yield is an accurate predictor of impending economic recession. Here we compare the 10 Aug 2022 yield curve inversion low point to the low points in 2007 and 2000 that pre-dated the Great Recession and Dot Com stock market crashes. While a small inversion (below 0) does not always pre-date a recession, inversions as low as the current 10 Aug 2022 always have.
Even more interesting is when you zoom in to the daily chart. Here we see the 10Y - 2Y moving back towards 0 from 10 Aug 2022 through 22 Aug 2022, even as stocks have begun to decline since release of the Fed minutes and recent commentary from Fed officials about the importance of continuing with additional rate hikes based on current inflation data.
Yield Curve vs SPX We're quickly approaching all time lows on the 10yr-2yr yield inversion chart. However, in the past the rates inverted at the end of the rate hike cycle. This time we inverted from the start of the hikes and aren't even half way to the Fed's goal of 3.5%. So we are in uncharted territory with the bond market.
Note, crashes followed the yield inversion, as rates started falling. The crashes happened anywhere from immediately to 2 years after initial inversion, but 6 months seems to be the median. Does that mean we run up and/or chop sideways until rates come down? Perhaps. however it tells me we're due for another crash when the yield turns positive again.
I'm not sure what to make of the rate hike bear trend line, but we are about to breakout of it, for sure. Perhaps we get more hikes than we bargained for. However, inflation numbers should improve soon with oil & metal prices falling, while food is about to go through harvest season. I anticipate some bull run off that. Inflation relief might be short lived, however.
Yield Curve Inversion Imminent (3M/10Y)Well, it has happened again!
We of course see the 2yr/10yr yield curve inversion:
It has been like this for some time. However, all I hear is: “But this time it is different!”
The U.S. curve has inverted before EACH recession since 1955, with a recession following consistently between 6-24 months after. Only one time in this time-frame has this signal failed.
I am hearing now, the only yield inversion that matters is the one the fed is paying attention to.
The 3-Month/10-Year.
Let’s keep in mind the Federal Funds Rate will continue to rise, most likely at a more modest pace and maybe with less regularity.
The point being that the 3month is highly correlated to the federal funds rate:
With the federal funds rate rising, and the 10y dropping we can speculate that even this 'curve comparison of curves' will also invert.
WHAT DOES THIS MEAN TO ME?
Inflation is certainly high, and the federal funds rate rising will reign it in with the sacrifice of jobs & growth
The yield curve impacts businesses & consumers
The higher borrowing cost will impact car loans, and mortgages
We are already getting data indicating a cooling housing market
Many Americans live off plastic credit cards. When the short-term rate rises the US Banks raise the benchmark rates for consumer loans, credit cards and other borrowing products. This increases cost for consumers.
Many banks love this environment. They enjoy the spread. When the yield curve steepens, banks borrow at lower rates and lend at higher rates. When the curve is flatter their margins are squeezed, which deters lending.
The Real Cost of Fed Rate HikesCBOT_MINI:10Y1! CBOT_MINI:2YY1!
The Federal Open Market Committee (FOMC) is scheduled to meet on July 26-27. Market widely expects a 75-basis-points (bps) Fed Funds rate increase, from current target of 1.50%-1.75% to 2.25%-2.50%. The call for a 100-point hike, while still feasible, is weakened after U.S. gasoline price dropped 70 cents per gallon in the past month. New data hints that the runaway inflation may be contained.
Federal funds Rate is the interest rate that banks charge each other to borrow or lend excess reserves overnight. It is the most important global interest rate benchmark, as it directly or indirectly influences the borrowing cost for governments, corporations, and households. By the end of July, Fed Funds would have gone up by 2.25% (assuming 75 bps hike in July) from zero before March. The Fed is not afraid of raising rate even higher until inflation moves back to its 2% policy target.
How much will a higher interest rate cost for government, business, or household? I will illustrate the impact of 100bps rate increase in this analysis. All data comes from either the Fed or USdebtclock.org, unless otherwise noted.
Total Debt : By the end of Q1 2022, the total debt outstanding in the U.S. by both public and private sectors is $90.1 trillion. Mind-boggling. What does the number mean?
• U.S. GDP was $23.0 trillion in 2021. Debt-to-GDP ratio is 3.92. It would take all Americans four years to pay off their debt, without spending or paying interest.
• US population is 332,403,650 as of January 2022 per US Census Bureau. Debt per capita is $270,949. Each time a baby is born, he or she already owes more than a quarter million dollar.
US National Debt : $30.6 trillion based on USdebtclock.org real-time calculation. This is just the debt owed by Federal government and various federal agencies.
• National Debt to GDP ratio: 133%.
• Federal tax revenue is estimated at $4.4 trillion in 2022. If our government just levies taxes and does nothing else, it will take seven years to pay off the debt.
• Federal budget is $6.0 trillion in 2022, with budget deficit running at $1.6 trillion. Interest on debt is $440 billion, the fourth largest budget item. If interest rate goes up 100 bps across the yield curve, federal government will have to come up with $306 billion extra to service the debt.
• Federal budget in 2022: $6.0 trillion
o budget deficit $1.6 trillion
o Interest on debt $440 billion (4th largest budget item)
o Remark: $306 billion extra to service the debt, if interest rate goes up by 100bps
• When all the rate hikes are over, annual debt interest payment could be over $1.0 trillion. It would become the 3rd largest budget item, behind Medicare ($1.4 trillion), Social Security ($1.0 trillion) and ahead of Defense ($751 billion)!
State and Local Government debt : $3.3 trillion, of which $2.1 trillion from state governments and $1.2 trillion from local governments.
• If interest rate goes up by 100 bps, state and local governments will have to come up with $33 billion extra to service their debt.
• We may expect tax hikes from state and local governments, while public services may be cut back at the same time.
US Corporate Debt : $11 trillion, which includes all debt issued by non-financial corporations domiciled in the U.S.
• If interest rate goes up by 100 bps, American businesses will have to come up with $110 billion extra to service their debt.
• We may expect higher prices for goods and services, as businesses pass on the interest cost to consumers.
• Companies with high debt ratio may increase the chance of delinquency.
US Household Debt : $23.5 trillion. This includes mortgage, auto loan, credit card loan and student loan, etc.
• Personal debt per citizen is $70,304. If interest rate goes up by 100 bps, each person will have to come up with $703 extra a year to service their debt.
• American families are fighting with a higher cost-of-living on multiple fronts. If the U.S. falls into a recession, their financial situation will worsen significantly.
• Mortgage delinquency is expected to rise significantly.
The remainder, approximately $21 trillion, is outstanding balance of credit instruments issued by banks and other financial institutions.
Believe it or not, we have only just scrubbed the surface of our mounting debt problem. Most government liabilities are unfunded or underfunded. Each year, the Federal Government borrows new money to pay off the maturing debt.
Medicare, Medicaid, and Social Security are pay-as-you-go programs. Government taxes current workers to pay for the benefits of retirees, without any money saving up for current workers. No one has a crystal ball if the benefits are still there when they reach retirement.
With such a depressing future ahead of us, are there any trading opportunities? The answer is yes. I am counting on the inverted yield curve to return to historical normal.
Yield curve plots the interest rates on government bonds with different maturity dates, notably three-month Treasury Bills, two-year and 10-year Treasury Notes, 15-year and 30-year Treasury Bonds. Bond investors expect to be paid more for locking up their money for a long stretch, so interest rates on long-term debt are higher than those on short-term. Plotted out on a chart, the various yields for bonds create an upward sloping line.
Sometimes short-term rates rise above long-term ones. That negative relationship is called yield curve inversion. An inversion has preceded every U.S. recession for the past half century, so it’s seen as a leading indicator of economic downturn.
On July 21st, the yield on two-year Treasury notes stood at 3.00 percent, above the 2.91 percent yield on 10-year notes. By comparison, two-year yields were one percentage point lower than the 10-year yields a year ago.
Why are we seeing yield curve inversion now? Short-term yield directly responded to Fed rate hikes. It has gone up 225 bps in five months. Longer term yields are determined by credit market supply and demand. The prospect of an upcoming recession held off lending by businesses and households alike, keeping the yields relatively stable.
In my opinion, yield curve inversion could not sustain for long. Borrowers would flock to lower rate debt, pushing up demand for longer term credit. Market force would revert the yield curve to a normal one with interest rates on long-term debts higher than those on short-term ones.
Are there any instruments we could leverage to trade the reversal of yield curve inversion? Long the Spread of CBOT Micro 10-Year Yield (10Y) and 2-Year Yield (2YY) .
Traditional Treasury Futures are quoted in Treasury Notes price, which can be viewed as the present value of future payments that bondholder will receive – interest payment every six months and the return of principal at par value at maturity.
Micro Yield Futures are more intuitive. They are quoted in yield directly. On July 22nd, August 10Y Yield Futures (10YQ2) was settled at 2.819. August 2Y Yield Futures (2YYQ2) was settled at 3.06. The 10Y-2Y spread is -0.241.
The 10Y-2Y spread has been positive in recent years. It turned negative in the beginning of July as we experienced the inverted yield curve. I expect the spread to return to historic normal - a positive number, in the coming months.
To trade Micro Yield futures, margins are $240 for 10Y and $330 for 2YY. A long spread can be constructed by a Long 10Y and a Short 2YY positions.
The great thing about a spread trade lies with the fact that you don’t have to be right in predicting the direction of interest rates. Spread will be widened if 10Y rises faster than 2YY. Even in a falling rate environment, if 10Y fell less than 2YY, the spread will be enlarged too.
Happy Trading.
Disclaimers
*Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
Time to buy short-term treasuries?A recession is incoming, the yield curve has turned negative and the euro is collapsing.
Three good arguments for buying short-term treasury notes.
And you still get 2,8 % return for a very safe investment.
I think it is a strong buy.
US 10YR Yield: A Possible Correction Ahead? US 10YR Yield has reached a yearly high at the 3.200% earlier this month. From the new high, the price retraced and retested the support level of 2.700%. In the 4-hour chart, we can spot a potential head and shoulder pattern. Therefore, we will observe if the price will break below the neckline area in the near future. If the neckline is broken, then we expect a period of correction for the US 10 YR yield.
What does it mean for the market if the yields start to fall?
Intermarket Relationship (Theoretical Explanation):
Yields and Bonds: Inversely Correlated *Yield can be considered an interest rate. Because most bonds pay a fixed interest rate, investment in bonds becomes more attractive if interest rate falls. Therefore, two are inversely related.
Yields and USD: Positively Correlated *A rising yield indicates USD appreciation while a fallling yield indicates USD depreciation. We can relate this relationship with the recent FOMC raising the interest rates, which has reduced the money supply to preserve the value of USD. As a result, yields rose and bond prices fell, and USD currency became more attractive to hold due to reduction of money supply.
Yields and Commodities: Inversely Correlated *If yields increase, USD will appreciate; therefore, an expensive USD would lead to a fall in commodities prices because most of the commodities are priced in USD.
Yields and Stock Market: Inversely Correlated *High yield environment leads to expensive loans, which discourage individuals from investing.
Therefore, if yields enter into a period of correction, we first expect the USD, or the US Dollar Index to fall, which would lead EURUSD, GBPUSD, AUDUSD, etc to rise and USDCAD, USDCHF, etc to fall. From the charts of those USD pairs, we can spot that the retracements have already begun from their recent highs and lows.
Check out our ongoing trading ideas below :)
How Joe Rekt the EconomyOverview of the yield curve indications on potential liquidity crisis occurring in the near future and leading to downturn in equities.
LEADING INDICATOR: YIELD CURVE INVERSION The Yield Curve can serve as a leading indicator of predicting the future stock markets' direction.
The Yield Curve is a graph showing how the yields on government bonds change till the bonds' maturity. Government Bonds are debt obligations issued by a national government. The government (issuer) is obliged to repay the principal (amount borrowed) at the maturity date + interest ( coupon ) at fixed times to the bondholder. The difference between stocks and bonds is: The stockholder has an equity stake in a company (i.e. they are owners), while the bondholder has a creditor stake in the state (i.e. they are lenders).
The yield yurve is a functional display: The horizontal x-axis presents the time till maturity, while the vertical y-axis depicts the annualized percentage yield to maturity.
The basic idea is:
The longer the time the investor borrows his money to the government, the higher his returns shall be.
At times of economic growth, the yield curve is upwardly sloped (i.e. rising) , because there are no hints that the government could not repay the investor as agreed.
At times of economic recession, the yield curve is inverted (i.e. falling), as fears of the governments inability of repaying the investor as agreed arise.
A. Set varoious bond rates in Tradingview:
1. Click at the Plus Symbol at the top left
2. Add US30Y
3. Add US20Y (in same pane)
4. do that till US03M
5. Change the color of the line graphs from US30Y light to US03M dark. Therefore you will get a nice color gradient whenever the yiel curve is healthy.
(The first pane shows the 30yr, 20yr, 10yr, 7yr, 5yr, 3yr, 2yr and 3M yield curves of the US FED)
B. Set long term, mid term and short term yield differences in Tradingview:
1. Add a new pane each with e.g. the symbol US30Y-US02Y.
If these curves fall, it recession might come. If one of these curves falls below zero, i.e. the interest rate is 0 and smart money can not make money with bonds. Whenever we have had a recession, many different yield curves were inverted.
The yield inversion is indicated when the short term yield periods rises sharply to the percentage of the long term yield, while the long term yield does not increase to keep its initial space to the lower yields.
Government Bonds and Stocks tend to be in an anticyclical relation. Whenever stocks rally, bonds are down and vice versa. Big Money avoids stocks if they can get risk free gains with bonds. Bear in mind that the bond market is way more liquid and therefore a great place for Institutions to make their billions.
The Smart Money outflow of the stock market can be seen the clearest at high growth stocks, as these were the best promising to make gains at low interest rate times.
T10Y2Y Yield curve inversion potential crucial pointWhenever this chart crosses 0 it means the yield curve for the 2 and 10 year bond yields has inverted. Historically a significant economic downturn followed. It's not perfect but nonetheless I wanted to put this out there for feedback.
Thanks
Part 2) Don't Fight The FED. The Yield Curve is Fine.All over financial news we're being told that the yield curve is inverting, spreads are flattening, the recession clock is ticking, there's impending doom around every corner. CNBC, Bloomberg, Yahoo Finance, The Wall Street Journal, Forbes, The Economist, you pick your favorite news source and they're talking about 2's and 10's, 10's and 30's, it's Armageddon!!!
How about we look at the actual indicator the FED uses to predict U.S. Recessions. The Federal Reserve uses the 10-year/3-month term spread as it's most reliable indicator to predict U.S. Recessions. The charts posted above come directly from the Federal Reserve of New York's website. According to the FED's data the likelihood of a recession in the next 12 months is about 6%.
Here is the link to the website:
www.newyorkfed.org
Link to the interactive charts:
www.newyorkfed.org
Link to FAQ's:
www.newyorkfed.org
The team at All Star Charts did an interesting post on this topic just recently. I suggest you take a look.
allstarcharts.com
Food for thought. Thanks for reading. Good Luck to All!!
