The Inverted Yield Curve - What do you economics nerds think?

10/23/12 | fwdude

[fwdude]

I'm looking for your take, if you're deep into economics and business cycles, on the steeply inverted yield curve on fixed income instruments I'm seeing now. Conventional wisdom says that it signals a serious economic downturn, with the degree of the inversion commensurate with the severity of an impending economic recession/depression.

I have been watching a lot of rates on Bankrate and see this sign across the board. My own ING Direct accounts are no exception; I'd have to go out to 60 month CD's - 60 months!!! - to just barely clear the rate I'm earning on my regular demand savings account. I've never seen anything like this before.

Despite what the eneMedia is tell us, based on this economic indicator, I'm fearing a serious crash that even makes 2008 look mild in comparison.

Any analysis?

[Thane_Banquo]

Here's a real yield curve, the core yield curve for the USD market that is traded to the tune of billions of dollars daily (or more). Definitely not inverted.

Not sure what you're seeing in CD's, but the above curve is the one to look at.

[fwdude]

I’m not sure what consumer interest rates are based on, but they are definitely inverted.

[waynesa98]

We are in uncharted waters, the only thing I know is eventually interest rate must skyrocket so I would not be in any bond instrument thats not inflation protected (TIPS).
With the fed printing debt, M3 velocity at near 0. Realize the fed is being paid about 1%/tr to hold excess reserves for banks, think about that a negative interest rate. People are so worried about the global economic situation that its not the return on investment but the return of investment.

I would say we will likely double dip, 100% if bathhouse barry is reelected, 50-50% for willard. China is likely already in ressesion. Look at the dry bulk tonnage rates and the decrease of china’s exports.

I think the yeild curve is basically saying it has no idea what the hell is going on because of the manipulation by various central bank, thus distorting the feedback mechanisms.

I would plan for massive inflation unless we’ve passed the tipping point and the only way out is the deflationary shock of the 1920 depression.

[thinden]

used to be that an inverted yield curve was more of a leading indicator that the recession was nearing an end.

used to be the best strategy during an inversion was to extend your maturities, and ride the yield curve down as it normalized (back to short rates lower than long rates).

inverted yield curves never really lasted too long 90 days to a year or so in more most cases cases.

now with as much supply as the fed is pumping into the bills, an inverter yield curve may be today’s “normal” yield curve?

could be just massive supply in the short end and no inflation in the long end will keep it inverted?

[JCBreckenridge]

Where is the demand going to come from? Europe is shrinking, and so is America. People coming up are making less than their parents so demand is just going to get crushed like a tin can in an 10 psi room.

[waynesa98]

Demand is being suppressed by the over size government theft of created capital. Demand can be restarted by dropping the % of total gov spending below the about 30-35% of total gdp(fed local state). State and most local non commie gov’s are dropping out of necessity. The commie gov’s will be forced to privatize services once they can't spend other peoples money. (voting with ones feet as a person or business) has a tendency to eventually stop the madness.

Signal out of the willard camp would indicate he would be willing to kill many of the progressive programs begun since nixon. So we need to reduce fed spending by 1.4T/y

A basic truism is if you want a $1 worth of widgets, go by the dam things yourself. If you want your local gov to give you a widget its going to cost you about $2 for that $1 widget. You have to pay the salaries pensions. If you want the state to give you a widget is $3/1, same as the local but with more corruption and crony capitalism and lack accountability. Feds $= 4-6+\1 depending on the agency. Now your in anti accountability where you get punished for not wasting allocated $. Look up baseline budgeting.

1st change is to outlaw baseline budgeting for ever. Then move the decision as close to local as possible.

[Norman Bates]

The yield curve is not currently inverted. If you have to go out 60 mos. that means rates are higher for terms further into the future, hence the lack of inversion. The ING rate for that particular product is a marketing tool.

[JCBreckenridge]

Reality is a tenaciopus mistress. Unyielding and firm.