Treasuries

[caribbean20]

And there you have it.

 

[bentprops]

It’s called a “flat yield curve.” Flat or inverted yield curve, meaning longer dated maturity bonds have a lower interest rate than shorter dated maturity bonds, generally means a recession is coming.

Generally it means a recession??? I believe its 100% accurate!

 

[2Driver]

It will take 6-12 months.

In typical fashion Americans are addicted to their spending habits and will refuse to adjust their lifestyle until they have burned though all their available cash and run up their credit cards. Then BOOM!

A year ago a 30 year fixed was 2.9, it’s now 4.95. That’s $500 a month more for the same 500k house. Add in fuel and inflation and the burn rate is pretty high for the consumer.

The fed won’t be able to control supply shortage inflation with rates until they are a lot higher than they are now.

 

[bentprops]

A lot tmore going on here than what most think. This is straight up attack on the US dollar. Most leader of the world including Treadu Putin Biden and Xi are all apart of the Would economic forum, the Russia Ukraine bs is just a cover to remove the usa from its world dominace and brake the US dollar reserve currency. If you dont believe me check out the website. Some of the stateed goals are remove usa super power status, and you will own nothing and be happy. Also look at UN agenda 2021 and 2030 goals. Give someone some money and power and they want to take over the world.

 

[OldSchoolBoats]

A good read on inversion -

Curve Inversion Hype. What Really Matters?​

MBS Morning Matt Graham | 12:26 PM

The new week begins with longer-dated bonds recovering significantly better than short-term notes after Friday's big selling spree. In fact, the shortest-dated Treasuries aren't recovering at all with 2s and 3s trading higher in yield as of 11am ET. This only adds to the rapid move toward a fully inverted yield curve (2yr yields higher than 10s)--something that's now within striking distance perhaps as early as this week. Much has been made of curve inversion, but it doesn't necessarily mean what everyone thinks it means.

What does everyone think an inverted curve means? In a word: recession. Rarely do market concepts get as much instant traction and evade thoughtful critique as one that can be claimed to have "successfully predicted every major recession since the 1950s" (or whatever it is that everyone seems to be saying).

Inversions don't predict crap.

Inversions are quite simply a historic comorbidity of mature economic cycles--a symptom that coincides with other symptoms, but not one that necessarily occurs for the same reasons and never one that acts as a catalyst. The lag time between inversion and recession is also problematic considering it can be construed to be as short as a few months or as long as several years.

There also seems to be no correlation between the size of the inversion and the size of the ensuing economic contraction. For instance, the curve was MUCH more deeply inverted in 2000 before the relatively mild 2001 recession, but barely inverted at all before the massive Financial Crisis.

And how about the inverted curve in 1982 that preceded once of the biggest and certainly the most stable periods of economic growth in U.S. history? Or was that inversion a good thing because it was less of an inversion by 1982 than it had been in 1980?

Let's also consider that the curve was within 7bps of inversion in 1994 and remained within 60bps of inversion for the next 6 years of economic expansion. The curve inverted once in 1998 and then again in 2000, so which of those two inversions gets credit for the 2001 recession?

In fact, which curve inversion gets credit for ANY recession? The answer: none of them! To reiterate, the curve inverts at the end of mature economic cycles and often because the Fed has decided to remove accommodation by hiking the Fed Funds Rate. Indeed, note the white vertical lines in the following chart at the intersections of inversions and the end of Fed rate hike campaigns. (NOTE: leading indicators data is used for recessions here as it is more granular than quarterly GDP data, and matches up just fine).

A few notes on the chart:

First off, we must understand the psychology of the market and the Fed following the early 80s. Inflation had finally fallen. The economy was expanding very nicely, but mortal fear of inflation remained. As such, at the first sign that inflation was no longer gently descending the Fed began hiking rates, slowly at first, but then abruptly (even though the economy was far from overheating). The combination of overly restrictive Fed policy and the lingering effects from the S&L crisis tipped the economy into a shallow, short recession. The curve inverted as a result of the Fed's rate hike campaign.

Inflation fell steadily and, some would say, mysteriously throughout the 90s. The x-factors of globalization, automation, and e-commerce remain underappreciated as disinflationary drivers during this time. Under the mistaken belief that solid economic growth MUST result in inflation, and with Greenspan afraid of the "irrational exuberance" that would make the post-QE era look like a Daytona Beach spring break party, the Fed kept rates high enough to keep the curve within 60bps of inversion (and within 7 bps in 1994, as stated). The curve inverted in 1998, but the economy bounced back stronger as the dot-com bubble inflated. The Fed hiked again, further inverting the curve, but by that time, the dot-com bubble was bursting, and it deserves true credit for the 2001 recession.

Fed policymakers had another shot to combat irrational exuberance in the mid 2000s and this time, the phrase was far more appropriate. Once again, the curve inverted in response to the rate hike campaign, but the Fed was bringing way too little, way too late to a party that no one was really going to understand until years later. In fact, the curve only managed to invert very modestly before the Fed ended the rate hike campaign and inexplicably froze in its tracks for more than year while those of us working in the mortgage industry panicked about what was about to happen (the Fed hadn't cut rates as of July 2007! If you were in the mortgage industry much before that, do you remember July 2007? I sure do...).

All that to say, the curve inversion had absolutely nothing to do with the Great Recession. It was going to happen regardless of rates because the exuberant homebuying and lending environment existed across multiple rate levels from 2003-2006.

And ever since then, we've had QE and ZIRP (zero interest rate policy). ZIRP is a great way to ensure a steep curve for as long as the Fed wanted it. When ZIRP ended, it was a given that the curve would begin flattening. It did so in a more gradual and predictable way than at any other time in history. It gently touched inverted levels in late 2019 and bounce out of inverted territory a few months BEFORE the inking of the first phase of the US/China trade deal (widely thought to be a critical step in staving off a trade-war-driven recession in 2020). Instead, we had a covid-driven recession--one that would have existed regardless of the status of the yield curve in the preceding months.

Bottom line: 2018/2019 was the Fed's first really great shot at engineering a soft landing for the yield curve without causing recession. It's entirely possible if not probable they would have succeeded without covid.

The current situation is unique in the sense that the curve is inverting VERY early in the rate hike cycle. That fact alone means it's a terrible comparison to past instances of curve inversions, and that the dynamics are completely different. No one can say we won't experience a recession at some point in the next 2 years, but anyone can say that the reason for that recession will be something other than the shape of the yield curve.

 

[c_land]

A good read on inversion -

Curve Inversion Hype. What Really Matters?​

MBS Morning Matt Graham | 12:26 PM

The new week begins with longer-dated bonds recovering significantly better than short-term notes after Friday's big selling spree. In fact, the shortest-dated Treasuries aren't recovering at all with 2s and 3s trading higher in yield as of 11am ET. This only adds to the rapid move toward a fully inverted yield curve (2yr yields higher than 10s)--something that's now within striking distance perhaps as early as this week. Much has been made of curve inversion, but it doesn't necessarily mean what everyone thinks it means.

What does everyone think an inverted curve means? In a word: recession. Rarely do market concepts get as much instant traction and evade thoughtful critique as one that can be claimed to have "successfully predicted every major recession since the 1950s" (or whatever it is that everyone seems to be saying).

Inversions don't predict crap.

Inversions are quite simply a historic comorbidity of mature economic cycles--a symptom that coincides with other symptoms, but not one that necessarily occurs for the same reasons and never one that acts as a catalyst. The lag time between inversion and recession is also problematic considering it can be construed to be as short as a few months or as long as several years.

There also seems to be no correlation between the size of the inversion and the size of the ensuing economic contraction. For instance, the curve was MUCH more deeply inverted in 2000 before the relatively mild 2001 recession, but barely inverted at all before the massive Financial Crisis.

And how about the inverted curve in 1982 that preceded once of the biggest and certainly the most stable periods of economic growth in U.S. history? Or was that inversion a good thing because it was less of an inversion by 1982 than it had been in 1980?

Let's also consider that the curve was within 7bps of inversion in 1994 and remained within 60bps of inversion for the next 6 years of economic expansion. The curve inverted once in 1998 and then again in 2000, so which of those two inversions gets credit for the 2001 recession?

In fact, which curve inversion gets credit for ANY recession? The answer: none of them! To reiterate, the curve inverts at the end of mature economic cycles and often because the Fed has decided to remove accommodation by hiking the Fed Funds Rate. Indeed, note the white vertical lines in the following chart at the intersections of inversions and the end of Fed rate hike campaigns. (NOTE: leading indicators data is used for recessions here as it is more granular than quarterly GDP data, and matches up just fine).

View attachment 1100990



A few notes on the chart:

First off, we must understand the psychology of the market and the Fed following the early 80s. Inflation had finally fallen. The economy was expanding very nicely, but mortal fear of inflation remained. As such, at the first sign that inflation was no longer gently descending the Fed began hiking rates, slowly at first, but then abruptly (even though the economy was far from overheating). The combination of overly restrictive Fed policy and the lingering effects from the S&L crisis tipped the economy into a shallow, short recession. The curve inverted as a result of the Fed's rate hike campaign.

Inflation fell steadily and, some would say, mysteriously throughout the 90s. The x-factors of globalization, automation, and e-commerce remain underappreciated as disinflationary drivers during this time. Under the mistaken belief that solid economic growth MUST result in inflation, and with Greenspan afraid of the "irrational exuberance" that would make the post-QE era look like a Daytona Beach spring break party, the Fed kept rates high enough to keep the curve within 60bps of inversion (and within 7 bps in 1994, as stated). The curve inverted in 1998, but the economy bounced back stronger as the dot-com bubble inflated. The Fed hiked again, further inverting the curve, but by that time, the dot-com bubble was bursting, and it deserves true credit for the 2001 recession.

Fed policymakers had another shot to combat irrational exuberance in the mid 2000s and this time, the phrase was far more appropriate. Once again, the curve inverted in response to the rate hike campaign, but the Fed was bringing way too little, way too late to a party that no one was really going to understand until years later. In fact, the curve only managed to invert very modestly before the Fed ended the rate hike campaign and inexplicably froze in its tracks for more than year while those of us working in the mortgage industry panicked about what was about to happen (the Fed hadn't cut rates as of July 2007! If you were in the mortgage industry much before that, do you remember July 2007? I sure do...).

All that to say, the curve inversion had absolutely nothing to do with the Great Recession. It was going to happen regardless of rates because the exuberant homebuying and lending environment existed across multiple rate levels from 2003-2006.

And ever since then, we've had QE and ZIRP (zero interest rate policy). ZIRP is a great way to ensure a steep curve for as long as the Fed wanted it. When ZIRP ended, it was a given that the curve would begin flattening. It did so in a more gradual and predictable way than at any other time in history. It gently touched inverted levels in late 2019 and bounce out of inverted territory a few months BEFORE the inking of the first phase of the US/China trade deal (widely thought to be a critical step in staving off a trade-war-driven recession in 2020). Instead, we had a covid-driven recession--one that would have existed regardless of the status of the yield curve in the preceding months.

Bottom line: 2018/2019 was the Fed's first really great shot at engineering a soft landing for the yield curve without causing recession. It's entirely possible if not probable they would have succeeded without covid.

The current situation is unique in the sense that the curve is inverting VERY early in the rate hike cycle. That fact alone means it's a terrible comparison to past instances of curve inversions, and that the dynamics are completely different. No one can say we won't experience a recession at some point in the next 2 years, but anyone can say that the reason for that recession will be something other than the shape of the yield curve.

Interesting take. I definitely agree with the 2019 example.

There are a lot of market participants that accept the 10s2s inversion as an indicator... self fulfilling prophecy maybe? Probably more likely that the fed usually tightens until something breaks.

At any rate, it looks like we will get a chance to see very soon if the inversion/recession correlation still holds true. 10s2s has been edging closer every day. it is 8bps away as of right now. It was 20 Friday, and 13ish throughout the day.

 

[LargeOrangeFont]

Interesting take. I definitely agree with the 2019 example.

There are a lot of market participants that accept the 10s2s inversion as an indicator... self fulfilling prophecy maybe? Probably more likely that the fed usually tightens until something breaks.

At any rate, it looks like we will get a chance to see very soon if the inversion/recession correlation still holds true. 10s2s has been edging closer every day. it is 8bps away as of right now. It was 20 Friday, and 13ish throughout the day.

View attachment 1101222

Finally!! 18 months to financial armageddon!

 

[c_land]

Finally!! 18 months to financial armageddon!

8 basis points and 18 months

 

[Havasu blue label]

Don’t worry mr orange you already cut your debt by moving out of California all credit cards payed of etc

 

[DrunkenSailor]

Have had some good market movement today. I think it's the calm before tomorrows storm when the new core pce inflation y/y report comes out. If your looking to lock a loan today's probably a good day to do it.

 

[LargeOrangeFont]

Don’t worry mr orange you already cut your debt by moving out of California all credit cards payed of etc

What is this debt you speak of? I’m not familiar with that term.

 

[El Rojo]

Don’t worry mr orange you already cut your debt by moving out of California all credit cards payed of etc

What is this debt you speak of? I’m not familiar with that term.

This is RDP…no one here has any debt…

 

[LargeOrangeFont]

This is RDP…no one here has any debt…

Correct. This is a towing and personal finance forum after all.

 

[DrunkenSailor]

Treasuries started down again this morning then 3 o'clock eastern hit and the quarter ended. Since then the stock market has dropped 400 points in an hour and 3yr treasuries are up 5 basis points. The 2yr is flirting back and forth with the 10 year. The three year has passed the 30 year.

 

[c_land]

The selling will continue until morale improves!

 

[retaocleg]

The selling will continue until morale improves!

the BEATINGS will continue till morale improves.........
musk was right, buy real, tangible assests to make it through.........actual assets, not paper

 

[MSum661]

The selling will continue until morale improves!

Haa haa! I wouldn't plan on morale changing anytime soon!
Good times.

 

[2Driver]

While I’m sitting on cash waiting for what’s about to happen, happen, whats everyone’s thoughts on at least buying a 1 year note at 1.6% yield. It have ing the cash just sitting there, maybe half 6 months, half 1 year then reassses when they pay off

 

[c_land]

2-Year Yield broke out above 2.5% this morning and is backing off a little. Does this have anything to do with the sell off?:

https://twitter.com/i/web/status/1511344499678752769

 

[pronstar]

IMHO tracking the EuroDollar futures curve is a better indicator, because it’s less susceptible to Fed distortion

Good read here:

OK, Your Euro$ Curve Has Inverted, Now What?

So, the eurodollar curve has inverted. Bad news. Now what? While this is a major milestone in the monetary system’s decidedly anti-inflation/growth journey, it is hardly the end point of it. On the contrary, though it takes a lot of negative, deflationary potential to distort the

alhambrapartners.com

…and excellent podcast here, they cover the overal economy in great detail

Login to your Podbean Account | Podbean

Log into Podbean to start podcasting. Get everything you need for a successful podcast.

eurodollaruniversity.podbean.com

 

[2Driver]

2-Year Yield broke out above 2.5% this morning and is backing off a little. Does this have anything to do with the sell off?:

https://twitter.com/i/web/status/1511344499678752769

Yep its coming.

Consumers are too busy at the party and don’t even know the cops have been called. Most people don’t even know what all this means but they are about to get an education in it - in typical fashion, afterwards.

 

[Cdog]

Yep its coming.

Consumers are too busy at the party and don’t even know the cops have been called.

It's painfully slow...............

 

[2Driver]

It's painfully slow...............

I bet it ramps up too quick. The last time in 2018 they tried to let off 1.5 trillion with poor consequences.

LOL this time they have 9 trillion to dump. Most people are just focused on rate increases and don’t even know what this is.

 

[Cdog]

I bet it ramps up too quick. The last time in 2018 they tried to let off 1.5 trillion with poor consequences.

LOL this time they have 9 trillion to dump. Most people are just focused on rate increases and don’t even know what this is.

Fingers crossed. Lots of theories out there

 

[c_land]

I bet it ramps up too quick. The last time in 2018 they tried to let off 1.5 trillion with poor consequences.

LOL this time they have 9 trillion to dump. Most people are just focused on rate increases and don’t even know what this is.

Maybe we will get a clearer picture with FOMC minutes tomorrow. Lots of talk that Brainerd was trying to soften he blow of the content of the minutes to be released.

 

[MSum661]

So if I heard this right the "Buyer of last resort" for the last 10 years, the Fed, will start reducing their massive balance sheet ($8.9 trillion) at a pace of $95 billion a month starting in May. $60 billion in Treasuries and $35 billion in mortgage-backed securities, which is nearly double the rate of $50 billion a month the last time the Fed reduced its balance sheet from 2017 to 2019.

Interesting days ahead.

 

[DrunkenSailor]

So if I heard this right the "Buyer of last resort" for the last 10 years, the Fed, will start reducing their massive balance sheet ($8.9 trillion) at a pace of $95 billion a month starting in May. $60 billion in Treasuries and $35 billion in mortgage-backed securities, which is nearly double the rate of $50 billion a month the last time the Fed reduced its balance sheet from 2017 to 2019.

Interesting days ahead.

Things are gonna get interesting for sure. They are gonna flood the market with securities. I cant imagine that is going to fare the dollar well. The mortgage market is already oversaturated. Not sure who is gonna be lining up to buy these bonds at rates that are points behind new issuance... They are making money on the securities they hold. I don't know why they are so eager to liquidate except to make room for more....

 

[MSum661]

Things are gonna get interesting for sure. They are gonna flood the market with securities. I cant imagine that is going to fare the dollar well. The mortgage market is already oversaturated. Not sure who is gonna be lining up to buy these bonds at rates that are points behind new issuance... They are making money on the securities they hold. I don't know why they are so eager to liquidate except to make room for more....

Please pardon my French......it's a fucking mess.
I was listening to a WS bond trader after the minutes were released today and He said basically what you're saying., there was also a lot of other strong points made.
We'll see how things go.... right?

 

[2Driver]

Things are gonna get interesting for sure. They are gonna flood the market with securities. I cant imagine that is going to fare the dollar well. The mortgage market is already oversaturated. Not sure who is gonna be lining up to buy these bonds at rates that are points behind new issuance... They are making money on the securities they hold. I don't know why they are so eager to liquidate except to make room for more....

Keep in mind I believe the bond run off is for maturing US bonds. They just won’t be rebuying any more reissues, which takes a significant buyer ( and demand) out of the market. So if I understand it correctly, the government pays back the maturing bond and will have to reissue new bonds to the open market at a higher rate now.

As for the mortgage backed securities, I guess they open market sell them? I would like to know what rates and quality of loans are inside those securities on average.
HMM. Dumping mortgage backed securities, where have I heard that before.

 

[c_land]

10YR Yield has smoked a 40 year trend

 

[MSum661]

10YR Yield has smoked a 40 year trend

Good eye! Clearly broke through the upper technical channel line. Nice!
BTW, CPI 4/12/2022 @ 8:30 AM Eastern..

 

[c_land]

What happened with the 10 year auction today? Everything was doing better this AM and now going the other direction.

 

[DrunkenSailor]

What happened with the 10 year auction today? Everything was doing better this AM and now going the other direction.

CPI numbers were better outside of energy and food. 10 year auction was pretty weak.

Yield was 2.72 and cover was 2.43. Over half uncommitted.

 

[c_land]

Markets are going to do what the fed is afraid to do. The problem is there is no rate cut room to back stop a declining economy in that approach.

 

[c_land]

This looks healthy...

 

[2Driver]

I’ve been rolling mostly 3 months T bills or the equivalent in maturing notes. I have picked off a short term 12-month AZ muni paying 3% and 1 six month Tbill

Once things settle I’ll start placing longer buys and forget all this work I’ll add in a chunk of SCHD when I think things have gotten beat up enough and maybe some more preffereds

 

[coolchange]

So your sayin now is the time to sit in short term treasuries not cash?

 

[MSum661]

So your sayin now is the time to sit in short term treasuries not cash?

Staying defensive with cash. I see nothing I like at t'all.

The NFIB Small Business Optimism Index out today for the June 2022 read does not sound good.
"The NFIB Small Business Optimism Index dropped 3.6 points in June to 89.5, marking the sixth consecutive month below the 48-year average of 98. Small business owners expecting better business conditions over the next six months decreased seven points to a net negative 61%, "the lowest level recorded in the 48-year survey."

 

[2Driver]

So your sayin now is the time to sit in short term treasuries not cash?

A 3 month Tbill is almost as good as cash and you are making 2.2 right now and it’s state tax free. Why let it sit for 3 months making nothing. I’m too worried to place it anywhere else right now.

I just bought a tbill at schwab today that expires in Oct. paying 2.148. It’s not much but better than nothing. Schwab money market SNAXX is up to 1.48 and B of A is .05% so I'll take the 2.148 t/bill

 

[c_land]

So your sayin now is the time to sit in short term treasuries not cash?

It's all up to you and your own investment strategies.

My point was mostly that the yield of a shorter duration asset exceeding that of a longer duration assets is by no means what should be expected in a normal situation.

 

[coolchange]

I’ve got some liquidity right now but don’t want to tie it up long. Been looking t bills. Just don’t want it sitting in the credit union.

 

[MSum661]

Another relentlessly hot June CPI number out this morning.
YOY 9.1% vs. 8.8% estimate.
Market is now pricing a 79% chance of a 75 basis point rate hike in September on top of the 75 basis point rate hike for July.

Staying defensive in cash.

Crazy times!

 

[c_land]

Another relentlessly hot June CPI number out this morning.
YOY 9.1% vs. 8.8% estimate.
Market is now pricing a 79% chance of a 75 basis point rate hike in September on top of the 75 basis point rate hike for July.

Staying defensive in cash.

Crazy times!

Bank of Canada just went and hiked 100 BPS today! Jpow don't got a hair on his nuts to do the same, but the pressure is on.

 

[mesquito_creek]

I’ve got some liquidity right now but don’t want to tie it up long. Been looking t bills. Just don’t want it sitting in the credit union.

I bought 20k in direct issue US treasury ibonds that pay ~9.5%. These are 1 year notes. You are capped at 10k a person so that’s 20k for my wife and I. So yes, it’s the safest inflation beater available. Better than loosing value in the credit union. Not sexy and never talked about here at RDP…. You can buy 10k per person every year.

 

[coolchange]

I bought 20k in direct issue US treasury ibonds that pay ~9.5%. These are 1 year notes. You are capped at 10k a person so that’s 20k for my wife and I. So yes, it’s the safest inflation beater available. Better than loosing value in the credit union. Not sexy and never talked about here at RDP…. You can buy 10k per person every year.

Hadn’t seen those. Thanks for the heads up!

 

[mesquito_creek]

Hadn’t seen those. Thanks for the heads up!

You buy them direct from the treasury here. My 80 year old retired minnonite father turned me on to them last year.

I bonds — TreasuryDirect

www.treasurydirect.gov

9.62% today…

 

[Roaddawg]

You buy them direct from the treasury here. My 80 year old retired minnonite father turned me on to them last year.

I bonds — TreasuryDirect

www.treasurydirect.gov

9.62% today…

I bought 20k in direct issue US treasury ibonds that pay ~9.5%. These are 1 year notes. You are capped at 10k a person so that’s 20k for my wife and I. So yes, it’s the safest inflation beater available. Better than loosing value in the credit union. Not sexy and never talked about here at RDP…. You can buy 10k per person every year.

I bonds are good for 30 years. You can cash them out after 1 year but if you do it anytime in the first 5 years you give up 3 months of interest

 

[mesquito_creek]

I bonds are good for 30 years. You can cash them out after 1 year but if you do it anytime in the first 5 years you give up 3 months of interest

Math still works out even if you withdraw early…. Just a simple boring place to park a few bucks.

 

[2Driver]

I bonds are good for 30 years. You can cash them out after 1 year but if you do it anytime in the first 5 years you give up 3 months of interest

When you say cash them out you mean sell them on the open market correct? If so I assume like any bond there is a chance they could be under water as rates rise for those continue to climb?

 

[mesquito_creek]

When you say cash them out you mean sell them on the open market correct? If so I assume like any bond there is a chance they could be under water as rates rise for those continue to climb?

You are redeeming them directly from the issuer… ie the US treasury. The rate adjusts every 6 months, so you are only chasing the increases rates for a short period.