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Yieldcurve

The Best Yield Curve Tutorial You've Ever ReadThe two year has remained relatively flat since this week's open. However it did gap up significantly. Why is the 30 year falling (see linked article) while the two year remains consistent? Bonds of different maturities care about different things. In particular, the shorter end of the spectrum cares less about the long term effects of inflation and the general position in the economic cycle than the long end. Why? Those effects will be felt less in two years than the short term effects of interest rate decisions or the sentiment about it. Conversely, the 30 year has more time to price in these factors. It has to take in the considerations above, and more. Hence why the 30 year is tumbling right now, as it's more sensitive to risk sentiment and longer term factors. Don't forget that bonds are fixed income products, meaning they pay a yield that is inversely proportional to the price. The difference between the yield at either end of the spectrum is commonly referred to as the yield curve . The yield curve could also refer to a plot of the set of all yields on treasury products of various maturities. The difference between the two ends could narrow, or flatten . It could also steepen . Furthermore, that flattening or steepening could be driven by either end. In this case it is led by the long end. Since prices are decreasing (on account of risk on sentiment), we call this a long end led bear steepener . If you liked this analysis, subscribe for more content. Also check us out at Ghost Squawk!
CBOT:ZT1!Education
by quantguy
Long AUD/NZD, targeting 1.1000Recent developments A dovish RBNZ policy announcement has been conducive to the pair's push to a six-month high. Further monetary policy of asset purchases over negative rates was largely expected. Technical analysis The pair has given back a bit since rallying at its fastest pace since 2014 (around 7% increase in just over a month). If it can break past previous 1.0850 key level, then there should be a chance to test 1.10 or at the very least trade up the channel with ease. Primary drivers for a further move up On the fundamental side, elevated risk sentiment on the backdrop of bottoming growth in markets, as well as the continued divergence between RBA and RBNZ should support the upward direction of the pair. Policymakers have remained quite dovish, which should be risk-positive as central banks have incentive to ease rather than tighten. With that being said, the RBNZ policy stance is looking more dovish than the RBA's. We can look at both policy stances and yield curves for an indication of what's to potentially come. The RBNZ have kept the official cash rate at 25 bp, while the base of asset purchasing have been expanded to a cap of NZ$60bn. Although the market seems to be pricing in negative rates, I don't think it's likely that we will see that, given that the RBNZ effectively guided that it won't happen (at least for this year - although this could be on the cards for 2021). Why lose all credibility on forward guidance when there are other methods of easing such as bond purchasing or fixed term loans? Either way, the base case is further easing and I would look towards August and June meetings as further catalysts if financial conditions tighten. On the contrary, the RBA has stopped purchasing bonds since early May after hitting 25 bp on the 3Y; keeping the curve at the current levels should be supportive to Australia, which remains a relatively high yielding Aaa country (despite slight rating downgrade). Risks Downside risk on AUD/NZD lie in 1) narrowing policy differentials, 2) risk sentiment softening, 3) and/or a more hawkish RBNZ that would lead to NZD strength, thus pushing the pair lower. As such, targeting top end of the channel 1.1000 with a stop of 1.05985.
Long
by Miloslaw
6
Prediction of next financial downturn Pt.2Dow Jones dropped over 1200 points in one day, that's the biggest downward move ever happen. Interest rates are going down FED Watch Tool shows over 99% that FED will cut at least 25pts. More cuts will come soon, please check www.cmegroup.com I follow this website and 3-5 days ago there was only 10% for a single interest rate cut. Unfortunately, due to the Coronavirus outbreak global economy suffers and the whole world will soon enter Great Depression!
TVC:US10Y
by Simon_says
2
Yield Curve and the SPYIf we take some of the information that past yield curve signals have shown us we can expect about 18 Months of correction. Funny enough the average bear market is about a year and a half as well so there's a bit of confluence with what the charts suggesting and what we know as good trading rules of thumb. Based on this information i'll be letting part of my SPY Put position go into next month and look for reversals to exit and begin hunting long setups into April-May 2020. As with all trading the market can and will do anything it wants to haha so keep that in mind as well and be good about risk management ALWAYS. More Info: www.investopedia.com www.investopedia.com
AMEX:SPY
by JoshuaMcGowan
Macro Deep Dive - SPX, Initial Claims, Yield Curve and Fed FundsCharts: - Top left = SPX - Bottom left = Initial jobless claims (unemployment metric) - Top right = US 10 year and US 2 year spread (Yield curve inversion metric) - Bottom right = Fed funds rate (short-term interest rates) It is no secret that US equities are grossly overvalued, from Warren Buffet to Stanley Druckenmiller to Ray Dalio, the smart money has made their case for why US stocks simply cannot justify their valuations indefinitely. Yet Stocks continue higher, largely due to massive CB liquidity, spurred on from fears of a global slowdown and the ensuing economic impact this would have on such indebted nations and consumer, this coupled with the supply chain shock that the Corona-Virus is undoubtedly having on global trade is a recipe for disaster. So what are the macro/ recession indicators saying? They are flashing red. The Initial claims are at record lows, which sounds fantastic, until you realize that most major recessions and even depressions are accompanied with low, not high, unemployment. Recessions strike when everyone is complacent, when they are fat and happy and when they have their blinders on. I will be watching the initial claims and will look for the the claims to spike and reverse trend, as this is a much stronger indicator of structural weakness within the economy. Moving over the the US10y/ US02y spread, it is well known that the yield curve briefly inverted in 2019, however, the initial inversion is not the point to sell, this is due to the yield curve inversion being a leading indicator of recession. Historically, from the point of first inversion to the inevitable decline in equities, is roughly 12 months to 18 months. We are 7 months into the initial inversion and the yield curve looks like it is going to invert yet again. Finally we have the Fed funds rate, the targeted overnight lending rate for the Federal Reserve. The trend is clearly down, down, down with rates this has been rocket fuel for bonds which are now traded akin to equities for capital appreciation, rather than the interest bearing assets they were designed as. Furthermore, and perhaps most interestingly, it is not the point where rates are raised that signal trouble for stocks, but rather once the Fed pivots and reverses course and begins easing and lowering rates, THIS, not the rate hikes is the signal to watch for. It comes as no surprise then, that interest rate cuts have not only begun, but are in full swing, with further rate cuts this year, already being priced in. The macro outlook looks bleak, this bubble CANNOT last forever, however i firmly believe that the Banksters will not let this bubble burst without a fight, a global slowdown, coupled with global equity markets crashing would cause widespread panic and in some places, riots. So keep an eye out for the helicopter drop of money coupled with bail ins, bail outs and of course, more QE. -TradingEdge
TVC:US10Y
by Profit_Link
4
The Japanese 10yy is turning back to the downside. Sell AUDJPYHey all. I've been an avid fan of selling rallies on AUDJPY for the last year or so. Over the last few months, we saw the Japanese 10 year yield push higher from its lows (the Japanese 10 year bond was being sold). This was probably due to a slight recovery in global data, leading to a more risk on environment... And we eventually saw the Japanese 10 year yield push up to positive for the first time since March 2019. I do not believe the yield can sustain above 0%, however, due to the extensive QE push that the BoJ have conducted over the last 2 decades, since causing this debt to become relatively more expensive would be suicide for the central bank. On top of this, I do not believe that Abe's fiscal stimulus will create the desired increase in inflation expectations in the short to mid term. If it were to occur, however, we'd likely see a front end steepening of the Japanese yield curve. The BoJ have a policy of YCC (Yield Curve Control) where they want to keep the 10 year yield at or below 0%, since it's believed that the central bank is only able to control short term rates - this is why they introduced this measure. If we look at the chart of AUDJPY with the Japanese 10 year yield overlaid in orange, we can see that we are at a turning point, and this is potentially a good place to sell the Aussie versus the Yen to action this macro theme. What to watch out for as well could be a greater proliferation of the Chinese flu epidemic which is likely to lead to Yen being bought, potentially as a safe haven. I do not necessarily think this will have an effect on US stocks, since USD can also end up being a safe haven, and with the Fed essentially supporting the US markets, it may not make a valid case to be short AUDUSD - the idea is best supported by using JPY as the counter pair in the trade.
Short
by FinkPro
1
Gold Indication of Market Retrace :: 10YR Yield and S&P 500This post was encouraged because of the Economic Forum being held in Davos, Switzerland. The last 3 years (roughly since mid 2017) contained talk around trade war. This has caused chaos within the markets. We have moved up and down 1000's of points with no specific direction. It seems that September 2019 has shown the true colors of the market sediment. We can identify the percent returns of the 10YR yield, gold and S&P 500 from this date. Things have not been adding up and has been blurred by the DOW hitting new highs every other week, misleading investors. Nobody is saying to liquidate but a rotation of wealth is underplay. I do believe that this is a rotation of wealth that is not our normal move into commodities/metals but potentially something larger. Impeachment trial proceeds today during the start of the Economic Forum. Is this to sway attention towards Davos? We will never specifically know until everything pans out. The chart speaks for itself with presenting the data. I would like to hear anyone's thoughts, ideas and/or theories.
FX:XAUUSDLong
by MarketPointAlgo
USDJPY and the US 2 YEAR YIELD CORRELATION 'CRACK'Since the YC inversion in August last year (2019), there has been a "crack" in correlation between the US02Y and USDJPY. I expected the YEN to strengthen as the Japanese short the dollar against the YEN to hedge against the rising US Govt bond prices (due to the rate cuts) considering Japan holds a significant amount of US Govt debt. My initial thoughts on this is that the BOJ is focused on keeping the YEN weak to stimulate its export sector which accounts for a significant amount of its trade. At the expense of its debt ballooning ????? I'll be looking into this during the weekend. -Surecapital
by Txnytradesfx
1