U.S. Treasury Yield Curve Inverts for First Time Since 2007

Re:U.S. Treasury Yield Curve Inverts for First Time Since 2007 by arthurcolle on Friday March 22, 2019 @04:58PM (#19466895)

When investors buy bonds, specifically US Treasury securities, the relationship between the yield and the time to maturity (2,3,5,7,10,30 years) is generally upward sloping because, as the logic goes, the longer dated securities should have a higher yield because the investor wants to get paid more since they are parting with their money for longer.

https://en.wikipedia.org/wiki/Yield_curve#/media/File:Yield_...

something like that is usually "what's expected".

When we see yield curve inversions, usually beginning with just a small 'kink' on some point in the curve, that means that the yield at a point further out is lower than a shorter dated security. When the yield curve inverts like this, it means that demand for shorter-dated bonds is higher than longer-dated bonds, and because the duration of longer-dated bonds is higher than shorter-dated bonds, when demand falls for longer-dated bonds, those investors will instead buy shorter-dated bonds. Can also mean that the market believes that a recession is coming, so there's a flight to safety out of equities and into shorter-dated treasuries.

That's the gist of it

[ Parent | on HN ]

Re:U.S. Treasury Yield Curve Inverts for First Time Since 2007 by otherjason on Friday March 22, 2019 @05:20PM (#19467078)

I think you have the relationship between yield and demand backwards. The yield of a bond and its price are inversely related, so an inverted yield curve (lower yields at longer durations) implies the opposite of what you said: there is higher demand for longer-dated bonds relative to short-dated ones. One way to interpret this is that investors expect poorer asset returns in the short term, so they are willing to lock in a lower yield for a long period of time instead of, for example, taking significant losses in the stock market.

[ Parent | on HN ]

Re:U.S. Treasury Yield Curve Inverts for First Time Since 2007 by jussij on Friday March 22, 2019 @09:08PM (#19468402)

> When the yield curve inverts like this, it means that demand for shorter-dated bonds is higher than longer-dated bonds

That is true for a booming economy, but not for the inverted yield case.

It all comes down to where investors think the Fed is headed when it comes to interest rates.

For a booming economy the Fed puts up rates in an effort to slow growth.

For a lagging economy the Fed cuts the rate in an effort to stimulate growth.

Now consider the investor wanting to invest in bonds hoping for the best possible return.

In a booming economy you would only invest in short term 5 year bonds because chances are future interest rates will be higher than what you are currently getting.

But for a slowing economy it might be better to invest in the 10 year bond, to lock in a long term interest rate only because in the future interest rates may well be lower.

Now consider the supply and demand forces that also come into play.

When the demand is high the price goes up and the yield goes down and when the demand is low the price goes down and the yield goes up.

So when you have large numbers of investors wanting to get out of 5 year bonds (i.e. high selling) and into 10 year bonds (i.e. high buying) you get this inverted yield situation.

[ Parent | on HN ]

Re:U.S. Treasury Yield Curve Inverts for First Time Since 2007 by nramos3 on Saturday March 23, 2019 @02:07PM (#19471553)

Perfect in layman’s terms. The Federal reserve keeps spewing the economy is so strong and nobody in the bond world is buying it, thus locking in the long term rates now (they’ll never admit a recession is coming, or blindly don’t know).

It’s interesting to note the now 60% of bonds are now inverted, it was just 50% a day ago!!!

Even if one was to say this is just one indicator look at Canada -50% inverted and housing bubble currently

[ Parent | on HN ]