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Old 12-06-2006, 01:09 PM
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Default Inverted yield curve?

I saw in the Wall Street Journal that 3 month t-bills have better yield rates than 30 year bonds. I was wondering what some of the poster's thoughts were on the matter. Also does anyone know the last time we had an inverted yield curve?
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Old 12-06-2006, 01:17 PM
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IIRC, it's happened before (70s?)

Essentially, investors expect rates to fall over time, so if you invest in short term t-bills, and re-invest those when the time comes, the future investment yields will continue to fall. A 30 year bond locks in a long term yield.
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Old 12-06-2006, 01:17 PM
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The curve has had some level of inversion now for the past 6 months.

You can trace the history here
http://www.federalreserve.gov/releases/h15/
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Old 12-06-2006, 01:17 PM
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http://www.investopedia.com/terms/i/...yieldcurve.asp
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Old 12-06-2006, 01:20 PM
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This is a good one: you can play it and watch the history of yield curves since 1977.

http://www.smartmoney.com/onebond/in...ory=yieldcurve
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Old 12-06-2006, 01:29 PM
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Quote:
Originally Posted by esmith View Post
yeah I haven't followed bonds that close and realize this is dated to an extent. But it is still interesting. I don't think that it has happened since the 70's and perhaps it is forecasting a significant recession??
It's happened twice since the 70s (late 70s, early 80s) and once in 1999/2000. It's not steeply inverted right now, which would match the assumption that the economy is in for a mild recession while housing cools off. Financial services are doing exceptionally well, but we'll see if that lasts.
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Old 12-06-2006, 01:34 PM
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is it possible that the slow housing market has anything to do with it? Maybe people think that the fed will try to target a lower rate to help housing (and the other manufacturing markets that have been slow lately)?

Last edited by GuineaPig; 12-06-2006 at 01:34 PM.. Reason: fix typo
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Old 12-06-2006, 02:53 PM
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There have been a couple of stories about the inversion or possible inversion of the yield curve on Marketplace in the last year or two:

12/27/05 inverted yield curve http://marketplace.publicradio.org/s...200512271.html

02/18/05 a story about the possible inversion of the yield curve, not sure if it really did or not
http://marketplace.publicradio.org/s...200502181.html

I also found:
08/25/98 in the transcript they discuss that the yield curve was inverted at that time and that it had also inverted when the recession happened in the early 90's.
http://marketplace.publicradio.org/s...08/25_mpp.html

It doesn't exactly give one warm fuzzy feelings about the overall health of the economy when we've been riding one, as Jack says, for the last six months or so.
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Old 12-07-2006, 07:09 AM
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http://www.yieldcurve.com/marketyieldcurves.asp

UK curve has been inverted for a while
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Old 12-07-2006, 11:15 AM
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Summary Points
• A string of weaker than expected economic reports pushed Treasury yields sharply lower
for the week. The benchmark 10-year Treasury note yield fell below the 4.50% level for
first time since January. Overall, Treasury yields declined 0.09% to 0.20% led by short-term
maturities as markets increased Fed rate cut expectations.
• A 0.25% rate cut is now priced with 70% probability for the March FOMC meeting and
market has fully priced in three rate cuts for all of 2007, up from 2 at the start of
week.
• Focus for the coming week falls on Friday’s employment report where non-farm payrolls
are expected to increase 105k and the unemployment rate to tick up to 4.5% from 4.4%.
Europe, the ECB is expected to lift their overnight rate to 3.50% this week. Differing central
bank policies are primary driver of why US bonds have outperformed foreign bonds over
the past few months.
• As a result of some of last week’s data, consensus Q4 GDP estimates were reduced to
1.5% to 2.0% range, down from 2.5%-3.0%.
• The rise in bond prices/decline in yields has extended the second half comeback in bonds.
The Lehman Aggregate is up nearly 5.00% year-to-date through the end of November.
high yield market (up over 10%) continues to lead fixed income performance in 2006.
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