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Discussion Starter #1
I don't know if anyone noticed last week but the 3 month Treasury Bill yield was higher than the 10 year Treasury Note yield for five days beginning Friday March 23rd. This is known as a yield curve inversion. Historically, when the yield curve inverts steeply, or for several months, a recession and bear stock market usually follow within a year. This is because the high short-term interest rate indicates overly tight monetary policy while the low long-term rate suggests the bond market believes the economy will weaken.

A short-term inversion occurred in 1998 when the economy was much weaker but the U.S. was recession free for another three years. The inversions that occurred prior to the 1990 and 2008 recessions lasted multiple months and were deeper than the recent inversion.

So far, most of the Wall Street talking heads are dismissing the inversion but that's whan many did in 2007. They may be right because the labor market remains extremely strong although there are some recent signs of a cool down in manufacturing. Any thoughts?
 

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Statistics typically require at least 30 trials to detect significance. How many yield curve inversions have there been?

There is a reasonable underlying explanation, yet I doubt there has been enough data to prove it.
 

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Discussion Starter #3
Statistics typically require at least 30 trials to detect significance. How many yield curve inversions have there been?

There is a reasonable underlying explanation, yet I doubt there has been enough data to prove it.
Statistical significance is one of the inherent problems in the study of business and market cycles given that the NBER only lists 12 "official" recessions since the end of WWII. You can probably get by with 20 observations but we're not even close to 20 recessions in the post WWII period (I don't believe pre-WWII business cycles are very relevant to today's economy). I don't know a way around the statistical significance issue.
 

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For my work I spend time with a lot of people who are extraordinarily informed on this subject. I have heard a couple make a passionate case for inversion being a signal of something, but they don't seem to have proper economic motivation--mostly it's an empirical observation based on not that many occurrences.

The consensus among the economists I interact with is that interpreting the yield curve is tricky and fraught with error. It's nothing so simple as inversion meaning a downturn is imminent.
 

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The yield curve is not inverted.

Date 3 Mo 10 Yr
4/1/19 2.43 2.49
4/2/19 2.42 2.48
4/3/19 2.44 2.52
4/4/19 2.44 2.51
4/5/19 2.44 2.5
 

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the "d" from ban[d]
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IMO because the Fed under Obama took the Fed Rate to zero we will go through a long period of fixing that mistake.

I also think after 2008 there is less demand for long loans aka 30 year mortgages. I know looking back on my life of homes with 30 year mortgages I would be better off had they been 20 year at the most.

So short rates are going to be in search of higher rates factoring in the expectations of the Fed doing what they should vs killing what is happening while they try. Add fewer wanting 30 and fewer wanting to supply 30 it will become less relevant IMO.

I said all that to say I think the inverted yield curve when the 30 year is included will become less relevant to the market.
 

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Discussion Starter #9
For my work I spend time with a lot of people who are extraordinarily informed on this subject. I have heard a couple make a passionate case for inversion being a signal of something, but they don't seem to have proper economic motivation--mostly it's an empirical observation based on not that many occurrences.

The consensus among the economists I interact with is that interpreting the yield curve is tricky and fraught with error. It's nothing so simple as inversion meaning a downturn is imminent.
Deep or prolonged inversions are associated with deep recessions (1982 & 2007). Short-term inversions (1998) not so much. And by inversion I mean 3 mo T-bill or Fed Funds rate vs. 10y T-note or 30 year bond.

There doesn't seem to be universal agreement among economists as to exactly why the yield curve is a signal of an impending downturn but it seems to indicate excessively tight monetary policy which drives up short-term rates and makes investors in long maturity bonds less concerned about inflation.
 

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Discussion Starter #10
It's inverted again (3 month T-bill and 10 year T-note) and this time by a greater amount (0.22%). I'm not sure what to think here. If the curve remains inverted for a few months then the economic cycle and the stock market are probably at their top. That said, the market historically has rallied 8% after the inversion before the bear market begins. And it would not bode very well for Donald Trump's re-election.

The fixed income market is now forecasting four Fed rate cuts through 2020 which is a 180 deg. turnaround from late last year. I'll probably sit pat for now but avoid investing any additional cash in the market.
 

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The yield curve like may other market predictors has become so over used that most trading is ahead of the predictor. IMO

Also because the Fed wrongly took the Fed Rate to zero everything has changed. I am not sure anything but hyper-inflation will cause the Fed to get back to old normal Fed rates.

Just an opinion.
 

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I wouldn’t worry as much about the yield curve this time. It can be an indicator of recession , but it isn’t always. The fed has rates too high and that props up short term bond rates to some degree.
 

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Statistics typically require at least 30 trials to detect significance. How many yield curve inversions have there been?

There is a reasonable underlying explanation, yet I doubt there has been enough data to prove it.
Right now, leftist don't care. To them, if it had only been two days it would have been enough to scream the sky is falling, err, a recession is imminent. Remember, Bill Mahrer has been openly calling for a recession.

Now, they are also saying Trump blinked regarding the delayed tariffs on Chinese products. Yet, they completely ignored lat week China's deliberate currency manipulation to ease the pain at home. China is feeling this alright. The US leftists are trying to help them.
 

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It seems to me the Fed reacts to the economy based on its charter. The new bond issues react to the Fed rates. Then the economy reacts to the rates they can borrow on. I am not sure which is the chicken and the egg.
 
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