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Yieldcurve

March rate cuts had nothing to do with COVID...but the pandemic offered pretext to take dramatic action when it was already needed. When J. Powell started announcing rate cuts after the late 2019 'taper tantrum', nobody was surprised, either by the cuts or their size. These were modest cuts announced in successive FOMC releases. All seemed normal and the market appeared to take a breather on slightly lower rates. Then something peculiar happened in March 2020. Powell announced quite large rate cuts, not once, but twice, in two weeks, outside of the FOMC schedule. The pretext of course, was the pandemic, but the timing might suggest otherwise. Looking at the band of yields, you can see that the curve was already collapsing in January and February. The histogram displayed with the yield band is a composite indicator of all yield curves, each duration being weighed against the next. It appears that the rate cuts announced during FOMC after the 'taper tantrum' were insufficient to set the curve free, and it was still collapsing under higher rates. Powell needed to act quickly and aggressively. The pandemic offered the pretext of an outside threat to the economy. A one-off black swan event. This allowed taking action without having to explain that the bond market was already in deep trouble. The timing of the out-of-schedule rate cuts were both on days that the US10Y broke below key support.
TVC:US10Y
by iamroot
1
Divergence in COT data sends mixed reactions to the DXY PriceThe total Non-Commercial net positions have been rising since US bond yields had a major u-turn. However, there is divergence showing up among Non-Commercial Traders with leveraged traders continuing to add more short positions. Why is price going higher? Simply, price action has been converging with trading action of asset managers. My best guess, pension funds are rebalancing their portfolios in anticipation of rising interest rates and FED expectations to buy long-term dated treasuries to flatten the yield curve. Of interest, is the US 10 year yield. If it keeps rising, the US Dollar will rise too.
TVC:DXYLong
by GrizzlyBearBee
US Equity Market could bottom out soonTLT From a post view to analyze the market these days, "everybody" knows from the media that the reason is "fear of hyperinflation" But how much inflation is high enough and when does this correction ends? jump into my conclusion : the correction is ending soon. Why? there are 5 reasons to look for : 1 correction was triggered by diving T-note, looking at TLT, since the broke out from a 2B at early Feb, it accelerated, but approaching pre-pandenmic level. 2 raw material price on the massive run since last year, Copper and Crude oil had their times, but is approaching previous resistance 3 looking at nasdaq, 2Hr and 4Hr had made new lows but with MACD divergence 4 catalyst could be the freezing weather that send crude to the sky and the priced in stim bill, with dead line approaching, there still a big uncertainty in this, so could triggers some risk aversion 5 Nasdaq is approaching 12/18 quad witching support
NASDAQ:TLTLong
by JasontryHarder
2
Should you be concerned treasury yields are rising?The lowest-rated debt keeps outperforming safer securities, with investors apparently more concerned about Treasury yields moving higher than credit risk. Investors are now demanding the least extra yield to own junk bonds over investment-grade notes since 2014. Rising treasury yields implies one of two scenarios is happening or about to happen. 1. Global economic recovery is happening as a result of increasing vaccination and economic activity as countries open up. Inflation is actually rising to Central Banks' targets 2. Markets are about to crash with US FED & ECB struggling to push inflation higher. What are the financial markets telling you? DXY? S&P500? DAX 30? Commodities?
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by GrizzlyBearBee
Canadian banks offer high-yielding cushion in a correction.If you're worried that growth stocks (the tech and now healthcare stocks) are just ridiculously valued, then perhaps you should think about Canadian bank stocks as a potential cushion against a potential market correction. Earnings beat analyst expectations. Yields are in excess of 4%. Loan loss provisions will gradually find their way back into bank earnings as the economy recovers next year. The steepening yield curve also bodes well for future earnings growth.
NYSE:BMOLong
by malvinspooner
TBonds spread correlation suggests systemic recessionThe current trend of yield curve (10-02) looks very similar to past pre-recession eras. We heard many times that a negative yield curve means recession. But that's not the case : recessions occur with widening spreads after touching ZERO. In the past, it was a signal of systemic recession with high probability. I added a correlation indicator to SPX. We can observe clear cycles. We are currently in positive correlation, spreads are widening and SPX rising. It's the same situation than October 2007 : New ATH, quickly widening spreads above 0.70, positive correlation. Then the correlation became negative : widening spreads and falling indexes. Short sellers should focus on the correlation. As soon as it becomes negative, that's the signal of the next big recession.
TVC:US10YShort
by SebastienYC_FR
3
Bond Yields point to recession....or this time it's different?The 10y-2y bond yields are important because it is the long-short of market expectations; that is, how people view the near-term market vs. their perceived evolution of the market (that also anticipates the FOMC's likely reaction. It's several signals in one). The 10y2ys (blue) is the 10 year Treasury constant maturity (now at 0.96%) Minus the 2-Year Treasury constant maturity (now at 0.19%). The higher the number (and greater the difference), the more people value long-term certainty over the short-term unknown. Currently, the 10y-2y is at 0.8 and rising which last happened in December 2007, April 2001, December 1990, July 1986, October 1971... you get it. It's a reliable indicator, and in the past, a negative 10-2 spread has predicted every recession from 1955 to 2018 (SOURCE) , but has occurred 6-24 months before the recession occurring. The last time it went negative was in August 2019. THE ANALYSIS Notice that we're approaching a golden cross (yellow 50ema crossing the white 200ema). The last time this happened was January 2008, and May 2001. I've overlaid the S&P- you can see it's crashed. So is this a new paradigm of monetary policy? Or does nothing change? Is this time really different? Here's the historical US Yield Curve source. MORE ABOUT THE YIELD CURVE Bond prices and yields move inversely of each other. When bond prices go up yields go down, and vice versa. The reason that lower yields in the long term are a indicator for the economy is because longer term bonds are seen as safe investments meant for preserving wealth; while stocks, forex, and derivatives are riskier and used for growing wealth. When investors have a good outlook on the economy, they will sell their long term bonds and put that money into the riskier investments listed above. This flight from longer term bonds to riskier investments causes demand for the longer term bonds to fall, causing bond prices to fall ,and yields to increase. In times of bad economic outlook, people will start moving their money from stocks into the longer term bonds as a way to protect themselves from potential future downturns. This flight from stocks to longer term bonds causes demand to increase, causing bond prices to increase, and yields to go down. The change in bond yields is based on bond price, which is based on supply and demand. HISTORICAL CONTEXT: The 10-2 spread reached a high of 2.91% in 2011, and went as low as -2.41% in 1980. During recession, central banks lower rates pushing down the i.r. curve. When the spread starts contracting, market expects a coming cut of the i.r. and a future lower curve. For this reason, real world curves (vs academic ones) are decreasing on the long terms: a kind of economic cycle is implied. You may also read the spread under a credit risk point of view: a tight spread means "if an issuer can survive 2y, it is very likely that it will survive also 10y therefore a small extra premium is required". This is very clean in distressed bond issuers: implied yields usually form a reversed term structured (decreasing like an hyperbola). See more:
TVC:US10YShort
by TMoneyBidness
2
Bond Yields point to recession....or this time it's different?The 10y-2y bond yields are important because it is the long-short of market expectations; that is, how people view the near-term market vs. their perceived evolution of the market (that also anticipates the FOMC's likely reaction. It's several signals in one). The 10y2ys (blue) is the 10 year Treasury constant maturity (now at 0.96%) Minus the 2-Year Treasury constant maturity (now at 0.19%). When the spread increases, it means there's falling demand for long-term Treasury bonds, which means investors prefer higher risk, higher reward investments. Investors think interest rates will now rise in the short term. Currently, the 10y-2y is at 0.8 and rising which last happened in December 2007, April 2001, December 1990, July 1986, October 1971... you get it. It's a reliable indicator, and in the past, a negative 10-2 spread has predicted every recession from 1955 to 2018 (SOURCE), but has occurred 6-24 months before the recession occurring. The last time it went negative was in August 2019. THE ANALYSIS Notice that we're approaching a golden cross (yellow 50ema crossing the white 200ema). The last time this happened was January 2008, and May 2001. I've overlaid the S&P- you can see it's crashed. So is this a new paradigm of monetary policy? Or does nothing change? Is this time really different? Here's the historical US Yield Curve source. MORE ABOUT THE YIELD CURVE Bond prices and yields move inversely of each other. When bond prices go up yields go down, and vice versa. The reason that lower yields in the long term are a indicator for the economy is because longer term bonds are seen as safe investments meant for preserving wealth; while stocks, forex, and derivatives are riskier and used for growing wealth. When investors have a good outlook on the economy, they will sell their long term bonds and put that money into the riskier investments listed above. This flight from longer term bonds to riskier investments causes demand for the longer term bonds to fall, causing bond prices to fall ,and yields to increase. In times of bad economic outlook, people will start moving their money from stocks into the longer term bonds as a way to protect themselves from potential future downturns. This flight from stocks to longer term bonds causes demand to increase, causing bond prices to increase, and yields to go down. The change in bond yields is based on bond price, which is based on supply and demand . HISTORICAL CONTEXT: The 10-2 spread reached a high of 2.91% in 2011, and went as low as -2.41% in 1980. During recession, central banks lower rates pushing down the i.r. curve. When the spread starts contracting, market expects a coming cut of the i.r. and a future lower curve. For this reason, real world curves (vs academic ones) are decreasing on the long terms: a kind of economic cycle is implied. You may also read the spread under a credit risk point of view: a tight spread means "if an issuer can survive 2y, it is very likely that it will survive also 10y therefore a small extra premium is required". This is very clean in distressed bond issuers: implied yields usually form a reversed term structured (decreasing like an hyperbola). See more:
Editors' picks
TVC:US10YLong
by TMoneyBidness
54
Louis Vuitton & Dow Jones Intermarket correlation between Dow Jones and Louis Vuitton , and the fractal correlation between Yield curve ( US 10Y - US 02 Y ) and NZD AUD shift forward 353 weeks ,this technique of moving forward is used by Larry Williams and aims to align the same Wyckoff phases of two out of phase, unrelated graphs. The Yield curve is the most powerful indicator for the stock markets, the inversion of the curve predicts the trend change, I have devised a fractal system that predicts the yield curve, moving the Nzd Aud chart forward I get a fractal correlation that has existed for 25 years, will it continue to exist? if the answer is yes then it is telling us that the yield curve will change direction, but if it changes direction it means that the dow jones will also change direction, if this "law" is maintained, if the fractality is maintained I also have the information that will change the trend for Louis Vuitton too.
EURONEXT:MCShort
by claudioiommi
What could go wrong with the yield curve ?New Fed policy will allow inflation to run above its 2% target. To achieve higher inflation the Fed is is expected to hold short-term rates very low for a long time. A sudden steepening of the yield curve after an inversion almost always coincides with recession. Aggressive expansion of the money supply through fiscal and Fed policy has led to concerns of rising inflation. The US government needs to fund relief packages and pump money into a weak economy. Excess supply of longer-dated Treasury supply hitting the market may put additional pressure on prices and keep long dated yields moving higher. Institutions may aim to unload expensive long-term Treasuries onto the market which could depress prices and increase yields. Investors may soon demand higher yields on longer-term debt. But are we ready for higher back-end rates & a steeper curve? The inflation break-even rate between 10 year Treasury Inflation Protected Securities (TIPS) and regular 10 year Treasuries hit 1.8% last month, the highest since February.
TVC:US10Y
by dime
1