Stocks Stumble As Yield Curve Inverts

Associated Press ^ | 27 December 2005 | Ellen Simon

[jdsteel]

Inverted curves may occur as the Fed raises short-term interest rates, and are always followed by economic slowdown.

But how many years will there be between the inverted curve and the economic slowdown? No one knows, but I'm guessing at least 5 years or better. We are coming off of a 40 year low in interest rates, for crying out loud! The change has been from a "pedal to the metal" rate to "cruising speed". We would have to go up another full 2% before we are "braking". The Fed's #1 concern is inflation, which is under control for a variety of reasons. Don't buy bonds yet...as long term rates go UP the value of your bond will go DOWN (unless held to maturity at current crappy rates). Wait until we have a normal yield curve and 30 year mortgage rates are closer to 7%.

[Protagoras]

Tell Fred Sherman, Ben Stein and the other economic pundits.

Those people are predicting a 35% rise in the Dow in 2006?

[antaresequity]

Inflation moves gold. End of story.

Really?

[antaresequity]

I'm not sure if it ever has or not, but why on earth anyone would expect large percentage moves in thirty of the biggest most cumbersome companies in America in this environment is beyond me .

Just wait until they Re-Do the index...and kick out GM and others because they are not going up enough for them....LOL

[Protagoras]

If you are in the market for the long haul, then continue to dollar cost average into a well diversified porfolio consisting of no-load, low expense mutual funds while waiting for more favorable buying oppurtunities, which I would define as 1190 for the S & P 500 Index or around 9900 for the Dow. Also, do not buy gold as an investment for any reason, and stay away from real estate and REITS at current prices.

No charge for this advice? :^}

[trek]

This is all bunk. Despite what you are hearing in the press, the yield curve is NOT inverted.

From the latest Treasury Auctions:

Rate on the 91 Day T-Bill, 12/29 auction 3.999

Rate on the 10 Year Note, 12/15 auction 4.490

There is almost 50 Basis Points between the long and short end of the yield curve and these are not the best numbers since the yield on the 20 years is even higher. It may be true that some intermediate rates are inverted by a few BP. But this is meaningless.

People should stop wetting their pants over the yield curve. A real data point will be available in Feb when the Treasury auctions a new 30 year bond. I rate the chances of the rate on that issue being lower than the rate on the 91 day T-Bill at zero.

[byteback]

[Protagoras]

Just wait until they Re-Do the index...and kick out GM and others because they are not going up enough for them....LOL

Even if they Re-did the entire concept they wouldn't get 35% in a year. :^}

[Tarpon]

yep, year end adjustments always cause sell side pressure. Tax adjustments.

[antaresequity]

these are not the best numbers since the yield on the 20 years is even higher.

Oh...so the 20 year is higher than the thirty?....

You are wrong twice now

The curve is indeed inverted, and the 20 is not higher than the 30...

If you don't believe it you ought to check this out...

http://www.bondsonline.com/Todays_Market/Composite_Bond_Yields.php

[DManA]

Making rash assumptions is another indicator of a fanatic.

before one knows the facts

[trek]

Your graph illustrates exactly my point. The rate at the highest end of the yield curve is greater than the rate at the lowest end. This is what it means to have a positive yield curve. Thanks for posting it.

[Labyrinthos]

No charge. Merry Christmas.

[antaresequity]

LOL....right...oh man...the 2 year paper is yielding more than the 5 year paper...and that inversion will most likely wash down that line like a wave...

THE YIELD CURVE IS INVERTED OVER PORTIONS OF ITS RANGE...

This has been, IS, and always WILL BE highly abnormal and predictive...

Choose to ignore the FACTS at your peril sir...

[Bloody Sam Roberts]

[Bloody Sam Roberts]

Or better yet...

[trek]

Wet your pants if you must. Sell all your financial assets. By gold, get a gun and a garden. But you are wrong about the meaning of an inverted yield curve. The accepted definition of an inverted yield curve is when the yield on the 30 year bond is less than the yield on the 91 day T-Bill. You can rant and rave all you like but those are the facts. And as your own graph shows the (extrapolated) yield on the 30 year bond is clearly higher than the yield on the 91 day T-Bill.

EOM