What are your thoughts about the flattening yield curve? Do you believe investors should shift their holdings or stay the course with their current investments? Let me know down below!
Under normal conditions I would say that even if we had a recession on the horizon, I might retrench somewhat, only getting rid of my riskier assets, but with the Fed keeping short term interest rates at historic lows for so long, coupled with quantitative easing - which is nothing more than the printing of vast amounts of money - the distortions in prices out there could be huge. Prices on some assets like stocks and real estate may need to drop as much as 50% to get back to historic norms. The next recession could be a deep one. I, for one, am staying in cash until rates return to some semblance of normalcy and the Fed reduces its balance sheet by selling some of the assets it purchased to facilitate quantitative easing.
First off, I want to say a big thank you. Even as an Econ student, bonds were really not given a lot of discussion in my program of study. Your video was well presented and it helped me to grasp the concept much better. To answer your question about the flattening yield curve, I do believe it can be a tool for predicting recessions. We are currently at a very low unemployment level, and the Fed continues to raise interest rates. Once the Fed realizes that it has raised rates too much, it will start to backpedal and begin lowering them. From my point of view, this will be a major predictor of recession.
This video is EXCELLENT. I've been listening to macro videos, so many mentions of yield curve and I was sort of getting it. I also read 2-3 articles and watched 2-3 other videos. This one really brought all the complexity together in an incredibly simple and easy to understand manner. Kudos to you! and thank you!
Because it's heading to reverse. That's why the algorithm is getting active about it. A recession is indeed coming. Everything is getting affected, from gaming to real estate all around the world. This recession looks scary af if you ask me.
If you pay attention to markets you would’ve heard many analysts calling for a “Black swan”. I personally don’t think COVID was serious enough to shut down the economy; and some evidence supports that, but a virus made for a great catalyst for banks to repurchase assets for pennies. Never let a crisis go to waste.
I'm glad you used the 2-10 yield curve. I have been seeing more people talk about 3-5 or 1m-30yr because the numbers are more dramatic. We have to be consistent about our vocabulary if this is going to mean anything.
Investors generally aren't concerned about "locking in" their investment when they buy long-term debt, because they can always sell that debt at any time. Long-term yields decreasing relative to short-term yields may indicate a price reduction of short-term debt instead of a price increase in longer term debt, because short-term maturity redemption may have more risk than "riding out" a recession by holding longer term debt instruments. The first priority of investors is return *OF* their investment before return *on* their investment.
Lol I love how I was looking up yield stuff for cfa level 1 prep and your video is just randomly in my recommendations. Yet it perfectly explains things I've been struggling with. And you're a cfa charterholder so I know you got the basics down properly. Thanks a lot for this.
Bro I had economics, investment management and financial management modules in uni but you explained the yield curve way better! Simplified but way better, thank you.
Best explained video on yield curve by far. Many before you tried and failed and many might in the future, but here you've outdone yourself with the simplicity mate. Bravo!
Thank you for posting a clear presentation of this subject. The economic problem in the U.S. is that during Obama's presidency, interest rates were so low that anyone with money to invest, invested it in the stock market, so the stock market was overvalued. Now that the recession has ended, the Federal Reserve is raising interest rates again, which lures people to buy bonds again, which reduces the amount of money that's pouring into the stock market, which reduces the prices of stocks, and hence further reduces the incentive to invest in the stock market. The U.S. is undergoing a long, slow (overdue) correction of the stock market. But I don't see any significant problem(s) in the rest of the U.S. economy.
You raise a great point; markets are seeing heightened volatility despite improving economic data. That being said, some are concerned that Trump's tax cut may have obscured economic data (given that it provided a largely temporary boost to earnings growth), so I believe part of the current pessimism revolves around the possibility of growth not meeting expectations once the tax cut is lapped. Thanks for the comment!
Very well explained! I look at the 10-2 bond spread occasionally to see if it is becoming inverted, which is essentially the same as watching the yield curve flatten.
Hamish Hodder - Stock Market Investing thank you! Yea a lot of analysts I know look at the spread as opposed to the actual curve; a lot easier to keep track of what’s going on
@7:42 Richard: "what has happened in the past probably won't recur perfectly in the future..." -- The past is absolutely repeating itself in 2022. Thanks for this timeless video.
As a mortgage banker this is a great watch. The same investors bidding into mortgages are also looking at the long term of the treasury bonds. Those yields help me sense what might happen to interest rates on mortgages.
Funny, I've heard the media talk about it 1000 times but not once did they explain what it was or even mention that it was the bond market. Why don't they call it what it is "The BOND yield curve".
It would be interesting to see you go back to these older videos and see how covid effected this. How did the curve get affected by the stimulus and shutdowns?
The bond yield has been CRUSHED recently. Even Ray Dalio has said that bonds are not a great investment right now. If you want to diversify in this economy, you will be better protected with Gold & Silver.
You're way better at explaining this than my professor. Our last exam the average was a 65, but he took out one question bumping the average up to a 70... Sad.
I didn't pay attention to the publish date until I heard the words, "What does it look like today? Well there's no need to panic. blah, blah, the curve is still normal." Then I noticed these words came almost exactly one year ago. Now it is time to panic! LOL! Great video btw.
In this video you explained that the curve was flattening, but it was still healthy at the time of this video, the curve has inverted twice since then and I would love to see a new video about what you think about this and what you think is causing it. and maybe you could tell us where you think this is all going or what you think is coming. Great video.
Some old guy from Omaha named Buffett says to be greedy when everyone else is fearful and be fearful when everyone else is greedy. I'm no expert, but it sounds about right to me.
it's really simple: "Wall Street profits come from lending at interest"(usury). why this model succeeds in the first place makes for an interesting question tho..
Could you do a video on the inverting of the yield curve that’s happening now and explain it please? Your videos make it so easy to understand Finance! Thank you!
Great presentation! It really helped me understand the yield curve. So because of a better understanding, and I don't usually do this, but I moved my 401k completely out of stock mutual funds into US Treasury mutual funds in November and avoided loosing around 17% of value. Unfortunately, there's not many options with the company 401k. But I expect to buy back into the same stock mutual funds in the coming weeks at a huge discount.
Yield spread is getting tight now, only 1.1% difference. With FED keep rising rate (0.25%) every 3 months, it will totally flat in 12 months. With investor start getting nervous because tariff, global economic slowdown, high debt, it will get inverted before 12 months. Sign of recession already started on October but I expect official recession start early next year, when 25% tariff kicks in against China.
Thank you very well explained. Been watching some finaical UA-cam channels and since August I've noticed most of them saying the yield curve is essentially flat now and they are worried about another recession this year especially after how volatile Decber was. We shall see, I'm almost 23 and been with post college job for 7 months now. I know they say don't time the market but my gut tells me to wait it out a couple more months before I use my TD Ameritrade account. Nothing wrong with building a bigger emergency fund I guess.
Nicely explained..though I am from India, like all analysts from emerging market economies I closely follow US markets and yield curve flattening and subsequent inversion has come into picture around sept 2018 times...
One thing you did not talk about is how bonds that have a long rate of maturity are much easier to pay back at a later date. Consider a bond that matures 30 years in the future, counting inflation around 3%, you would have twice as much money in 30 years making it easier to pay back ($1,000 in year 1 would be same value as $2,000 at year 30). The bond also loses value from inflation every year and must be taken into account when calculating returns.
Very well explained. Reading a lot of comments suggesting recession coming soon. Likely within 6 months. Hope for best but plan for the worst . Worst scenario will be if and when climatic changes cause havoc at same time as economic recession occurs .
Planning for the worst is a great investment approach; unfortunately I think with things like cryptocurrencies and weed stocks, people often instead plan for the best. Thanks for the positive feedback!
Spent many years in finance and experienced a 'steepening' of the yield curve in the early 2k's. At one point the spread between a 2 and 3 year fixed income product was almost 2%!!
Wow, excellent video. Clear and concise explanation, good production value, and you have a very pleasant style of presentation. I'm gonna spend some time perusing your channel.
Good explanation on the yield curve. However, when bringing up past flattened yield curves one aspect is missed. That is the role of quantitative easing. This does affect the way that the FED manipulates the rate. which could mean that the inverted yield curve is not as accurate as it once was. there is a story out there from Bloomberg which goes in-depth on measuring inverted yield curves using corporate bonds rather treasuries treasuries because of the quantitative easing component.
I have an important question: if I bought a 30 year treasury bond 12 years ago, so there are 18 years left until the capital is reimbursed, then is it still considered a 30 year bond on the x-axis of the yield curve?
@@CaravaggioRoma In general the yield curve tracks the time varying interest rates from period 1 to 30 or more. The bond is a 30-year bond but has 18 years to maturity (owner held it for 12 years then sold it) so on the yield curve you would match it on the x-axis as 18 and it would show its current yield on the y-axis. Otherwise, if you held the bond since day one till maturity you would have the yield to maturity which is the annualized rate of return on a bond assuming you hold it to maturity. You can look on the US Dept of Treasury website for historical current and future bond yields of varying time denomination.
Since one end of the yield curve is subject to manipulation, the question should be how fast does the other end react? If the 10 year t-bond reacts slowly, then manipulating the 2 year end would also manipulate the yield spread. In that case, it's rather pointless to point to any implications of the yield spread, right? Also, does that effect all assets equally? It might be interesting to compare the yield curves to housing. The higher the yield spread is, the more attractive long-term investments are, theoretically. New homes are often built by borrowing short term loans like bridge loans first, whereas existing homes are often financed by long term loans from the get-go. So demand for one over the other ought to show a similar story, right?
term structure of interest rates & yield curve both are same . Very well explained . One question comes to my mind ,what will happen if China and Japan starts selling or dumping all or half of the US securities at a lower rates ?
Over here in Australia, the property market is tanking, the banks have about 60% of their loans in mortgages (much of which are in the subprime category). The banks have tightened credit due to a Royal Commission into misconduct in the banking and finance sector. Household debt at record levels. Wages are stagnant. Over priced properties. So, yes the yield curve seems to be in line with what is happening here. Also heard that central banks are winding back QE, so less share buy backs for companies. Maybe now we'll see how companies are really performing.
I've been meaning to dive more into the Australian economy. I've read that the country hasn't had a major recession for a very long time. It'll be interesting to see how the country handles these coming challenges...best of luck over there!
We will but it’s not a private sector monster this was created by central bankers. Low interest rates have made business dependent on cheap money. When rates rise it will begin to fall apart.
@@naturalLin About 10% nationally in an 18 month period. More here if interested www.abc.net.au/news/2018-12-10/how-hard-has-australias-property-downturn-hit-your-suburb/10588960. How much it will feed into the real economy is yet to be seen, I think international factors (commodity prices, trade wars etc.) are probably more important as to whether we avoid a recession.
Thank you so much for your explanation, I am from Bolivia and I will intend to make a yield curve for my country, I will use a method of cubic splines, however it is not clear to me what does it mean if the yield curve has a hump?
Hi Fabian, it is important to think of the players in the yield curve. Often those in the very long term bonds are insurance firms that will never sell and hold a 30 year bond to maturity. So in that case the long terms will not be sold for medium term. It’s called preferred habitat theory.
@@callum938 thank you so much... I'm reading all the YC theory, because I'm searching information, and your coment Is very helpful, thanks from Bolivia
What are your thoughts about the flattening yield curve? Do you believe investors should shift their holdings or stay the course with their current investments? Let me know down below!
Under normal conditions I would say that even if we had a recession on the horizon, I might retrench somewhat, only getting rid of my riskier assets, but with the Fed keeping short term interest rates at historic lows for so long, coupled with quantitative easing - which is nothing more than the printing of vast amounts of money - the distortions in prices out there could be huge. Prices on some assets like stocks and real estate may need to drop as much as 50% to get back to historic norms. The next recession could be a deep one. I, for one, am staying in cash until rates return to some semblance of normalcy and the Fed reduces its balance sheet by selling some of the assets it purchased to facilitate quantitative easing.
Interesting take, thanks for sharing!
First off, I want to say a big thank you. Even as an Econ student, bonds were really not given a lot of discussion in my program of study. Your video was well presented and it helped me to grasp the concept much better. To answer your question about the flattening yield curve, I do believe it can be a tool for predicting recessions. We are currently at a very low unemployment level, and the Fed continues to raise interest rates. Once the Fed realizes that it has raised rates too much, it will start to backpedal and begin lowering them. From my point of view, this will be a major predictor of recession.
Glad that the video helped! And thanks for the input!
Even Planet Money is divided over it. Some say it is OP, other overrated. But it had not been wrong about indicating a recession.
In 9 minutes this video has taught me more about the yield curve than my university finance module has in 3 months
University is a scam, and this is from someone who went there for 7 years.
Who came here after yesterday's 800 point drop in the Dow? So well explained! Thanks man!
Glad you found it useful!
Did they teach this in school? Was I asleep, or was it only for economics majors?
@@GaryCruz LMAO I am a civil engineering major. Def seems like a think only econ majors would learn.
@@GaryCruz They do not unfortunately. I have a bachelors in Finance, but I only learned about this through my work in the investment field
Its weird how some of the more nasty things are swept under the rug. Like the Federal Reserve. I learned nothing about it in school.
I have a degree in economics and trade the yield spread as well as other investments. Im pleasantly surprised how well you explained this. Great Job!
Thank you!
Cortez has a economics degree also lol...
farmermatt629 bachelor
@@farmermatt629 Just because one idiot has an economics degree, it's not relevant?
Vaibhav not what I was saying.... I basically meant their are a lot of educated idiots in the world
This video is EXCELLENT. I've been listening to macro videos, so many mentions of yield curve and I was sort of getting it. I also read 2-3 articles and watched 2-3 other videos. This one really brought all the complexity together in an incredibly simple and easy to understand manner.
Kudos to you! and thank you!
after all, the stock market has predicted 9 of the last 5 recessions.
Funny, I see what you did there.
I didnt see, tell me :(
and let's not forget someone makes money on it too. stock market predictions are one big bull****
@@MrEaglenator 9 predicted - 5 actually happened
Skys the limit. Recession never gonna hit.
"Hey no need to panic!"
*one year later*
"EXPLAIN A YIELD CURVE AND WHY EVERYONE IS PANICING PLEASE"
Because it's heading to reverse. That's why the algorithm is getting active about it. A recession is indeed coming. Everything is getting affected, from gaming to real estate all around the world. This recession looks scary af if you ask me.
"Listen to the experts" -Mainstream media
"Nobody panic" - The experts
:everyone runs for the exit, buys gold:
well here we are, the curve was right
so the curve predicted a virus from a chinese lab 2 years before?
@@nicolasmulet2364 indeed
Sounds like some kinda conspiracy theory to me 🤨🤫🤐
@@vanzypubg8469 actually it was just a conspiracy
If you pay attention to markets you would’ve heard many analysts calling for a “Black swan”. I personally don’t think COVID was serious enough to shut down the economy; and some evidence supports that, but a virus made for a great catalyst for banks to repurchase assets for pennies. Never let a crisis go to waste.
very under rated channel.
The Yield Curve just inverted yesterday, Friday 22 March 2019.
@Ezra Goldberg $8740 as of today 30th May 2019...
LeRoy Parham, Jr. and again
Yeah.. recession is coming
just iron it
and now recession begins
I'm glad you used the 2-10 yield curve. I have been seeing more people talk about 3-5 or 1m-30yr because the numbers are more dramatic. We have to be consistent about our vocabulary if this is going to mean anything.
Thank for info. There is news about yield curve inversion all over the news today but no one seems to explain it as well as you did
thank god someone who knows how to explain things simply and knows what they are talking about...hard combination to find on the internet
Investors generally aren't concerned about "locking in" their investment when they buy long-term debt, because they can always sell that debt at any time.
Long-term yields decreasing relative to short-term yields may indicate a price reduction of short-term debt instead of a price increase in longer term debt, because short-term maturity redemption may have more risk than "riding out" a recession by holding longer term debt instruments.
The first priority of investors is return *OF* their investment before return *on* their investment.
This is, by far, the best short video on this topic I've ever seen. thank you.
Lol I love how I was looking up yield stuff for cfa level 1 prep and your video is just randomly in my recommendations. Yet it perfectly explains things I've been struggling with. And you're a cfa charterholder so I know you got the basics down properly. Thanks a lot for this.
Very clearly explained, and professionally presented. Well done, you are an inspiration to the younger generation!
Bro I had economics, investment management and financial management modules in uni but you explained the yield curve way better! Simplified but way better, thank you.
Best explained video on yield curve by far. Many before you tried and failed and many might in the future, but here you've outdone yourself with the simplicity mate. Bravo!
This might be the perfect yield curve explainer video.
Had to plot the yield curve using FRED data for my Financial Economics class, this is an amazing explanation of what I learned!
Thank you for posting a clear presentation of this subject.
The economic problem in the U.S. is that during Obama's presidency, interest rates were so low that anyone with money to invest, invested it in the stock market, so the stock market was overvalued. Now that the recession has ended, the Federal Reserve is raising interest rates again, which lures people to buy bonds again, which reduces the amount of money that's pouring into the stock market, which reduces the prices of stocks, and hence further reduces the incentive to invest in the stock market. The U.S. is undergoing a long, slow (overdue) correction of the stock market. But I don't see any significant problem(s) in the rest of the U.S. economy.
You raise a great point; markets are seeing heightened volatility despite improving economic data. That being said, some are concerned that Trump's tax cut may have obscured economic data (given that it provided a largely temporary boost to earnings growth), so I believe part of the current pessimism revolves around the possibility of growth not meeting expectations once the tax cut is lapped.
Thanks for the comment!
This is the first time - ever that the yield curve has been concisely explained to me ....thank you so much
Very well explained! I look at the 10-2 bond spread occasionally to see if it is becoming inverted, which is essentially the same as watching the yield curve flatten.
Hamish Hodder - Stock Market Investing thank you! Yea a lot of analysts I know look at the spread as opposed to the actual curve; a lot easier to keep track of what’s going on
The Plain Bagel Congrats on 2k!
Just inverted
I just discovered this channel and I'm learning so much even when I have been dealing with stock markets for the last few years. Hats off to you sir.
@7:42 Richard: "what has happened in the past probably won't recur perfectly in the future..." -- The past is absolutely repeating itself in 2022. Thanks for this timeless video.
Richard is one smart cookie.....I mean Bagel. ;)
Haha thanks Jay!
As a mortgage banker this is a great watch. The same investors bidding into mortgages are also looking at the long term of the treasury bonds. Those yields help me sense what might happen to interest rates on mortgages.
Your channel will have millions of subs in the near future
It is now the time to panic. It has just inverted. Dun dun dunnnn.
Stick to the plan!
The Plain Bagel what if the plan was to panic when the yield curve inverts?
D:
what are we shorting?
diversify
The best video about the Yield Curve. Period.
Funny, I've heard the media talk about it 1000 times but not once did they explain what it was or even mention that it was the bond market. Why don't they call it what it is "The BOND yield curve".
It would be interesting to see you go back to these older videos and see how covid effected this. How did the curve get affected by the stimulus and shutdowns?
couldn't have been summed up any better than this!
Thank you!
You are giving out great information. sometimes information channels go way under rated. keep up the good work.
Talked about coming rescission early on. Also your suggestion was solid. Kudos.
The bond yield has been CRUSHED recently. Even Ray Dalio has said that bonds are not a great investment right now. If you want to diversify in this economy, you will be better protected with Gold & Silver.
I didn't just like this video... I loved it! Nice and thank you very much..
So well explained! This is like the third video I’ve watched on the yield curve and I finally get it!
I am a product controller and this video helped me
You're way better at explaining this than my professor. Our last exam the average was a 65, but he took out one question bumping the average up to a 70... Sad.
Thank you so much for these videos. I am pretty economically illiterate and I actually understand what you are saying. Please make more videos. :-)
I didn't pay attention to the publish date until I heard the words, "What does it look like today? Well there's no need to panic. blah, blah, the curve is still normal." Then I noticed these words came almost exactly one year ago. Now it is time to panic! LOL! Great video btw.
This is the best vid explaning the Y curve. Thank you so much!!
The one explanation I finally understand. Subscribed!
In this video you explained that the curve was flattening, but it was still healthy at the time of this video, the curve has inverted twice since then and I would love to see a new video about what you think about this and what you think is causing it. and maybe you could tell us where you think this is all going or what you think is coming. Great video.
Finally found a channel that explains well.
Interesting to watch this video at this point in the cycle =)
Very well explained!! Coming from someone who graduated in finance!
The gesturing Canuck... well done.
Haha I like the alias
omg this video is so magical, the yield curve in 2018 really flatten and it proves that the everything in 2020 .
2019, the curve is inverted !
Time for an updated video.
Haha wait a second
treasury = a place or building where treasure is stored.
Some old guy from Omaha named Buffett says to be greedy when everyone else is fearful and be fearful when everyone else is greedy. I'm no expert, but it sounds about right to me.
Thank you, for simplifying the concept!
Thank you for doing this new video! I'm going to watch it a couple of times to make sure I understand everything.
Glad you found it useful! It’s certainly a little fast-paced but hopefully it can fill in any gaps about the concept.
Really cleared up a lot of questions I had haha
Glad you found it useful!
it's really simple: "Wall Street profits come from lending at interest"(usury). why this model succeeds in the first place makes for an interesting question tho..
As of today the yield curve is inverted. Aug 2019. Better buy gold, bitcoin and silver
Yeah I'm totally going to follow this random UA-cam comment.
You should have it's a all time high
and lead..... the most precious metal of all. haha
@@jeanrenetournecuillert2449 Did you ?
This aged poorly
Could you do a video on the inverting of the yield curve that’s happening now and explain it please? Your videos make it so easy to understand Finance! Thank you!
Wow that was the best explanation I've ever seen of it
It’s happening right now...this guy is a freakin genius
Wow, that music at the beginning is the same as the music they play when I'm on hold with my broker. I've listened to it for endless hours it seems.
This was the most helpful video ever! Thanks
Very informative and illustrative. Thanks for the explanation.
Great presentation! It really helped me understand the yield curve. So because of a better understanding, and I don't usually do this, but I moved my 401k completely out of stock mutual funds into US Treasury mutual funds in November and avoided loosing around 17% of value. Unfortunately, there's not many options with the company 401k. But I expect to buy back into the same stock mutual funds in the coming weeks at a huge discount.
Great video! Currently studying for my CFA L1 - the next topic is Fixed Income. I will apply this video to what I learn.
Yield spread is getting tight now, only 1.1% difference. With FED keep rising rate (0.25%) every 3 months, it will totally flat in 12 months. With investor start getting nervous because tariff, global economic slowdown, high debt, it will get inverted before 12 months. Sign of recession already started on October but I expect official recession start early next year, when 25% tariff kicks in against China.
Thank you very well explained. Been watching some finaical UA-cam channels and since August I've noticed most of them saying the yield curve is essentially flat now and they are worried about another recession this year especially after how volatile Decber was. We shall see, I'm almost 23 and been with post college job for 7 months now. I know they say don't time the market but my gut tells me to wait it out a couple more months before I use my TD Ameritrade account. Nothing wrong with building a bigger emergency fund I guess.
Officially my favorite page
Nicely explained..though I am from India, like all analysts from emerging market economies I closely follow US markets and yield curve flattening and subsequent inversion has come into picture around sept 2018 times...
Great video.. but just FYI... economics is not ever changing. That’s why the yield curve works.
Very good Video, thanks. Besides Yield Curve what other indicators would you check to be aware of a recession
One thing you did not talk about is how bonds that have a long rate of maturity are much easier to pay back at a later date. Consider a bond that matures 30 years in the future, counting inflation around 3%, you would have twice as much money in 30 years making it easier to pay back ($1,000 in year 1 would be same value as $2,000 at year 30). The bond also loses value from inflation every year and must be taken into account when calculating returns.
I love this video, is there any other channel in addition which can teach macros so beautifully
Very well explained. Reading a lot of comments suggesting recession coming soon. Likely within 6 months. Hope for best but plan for the worst . Worst scenario will be if and when climatic changes cause havoc at same time as economic recession occurs .
Planning for the worst is a great investment approach; unfortunately I think with things like cryptocurrencies and weed stocks, people often instead plan for the best. Thanks for the positive feedback!
Today the yield curve looks like a wavy letter v
You look too young to be this smart. Subbed.
Perfect explanation
Spent many years in finance and experienced a 'steepening' of the yield curve in the early 2k's. At one point the spread between a 2 and 3 year fixed income product was almost 2%!!
Hi, I come from the future, thanks from the explanation.
Cheers from 2023.
This is an excellent video, very useful information
Wow, excellent video. Clear and concise explanation, good production value, and you have a very pleasant style of presentation. I'm gonna spend some time perusing your channel.
Nice video, Richard. Well done!
Thanks Ben!
Good explanation on the yield curve. However, when bringing up past flattened yield curves one aspect is missed. That is the role of quantitative easing. This does affect the way that the FED manipulates the rate. which could mean that the inverted yield curve is not as accurate as it once was. there is a story out there from Bloomberg which goes in-depth on measuring inverted yield curves using corporate bonds rather treasuries treasuries because of the quantitative easing component.
I have an important question: if I bought a 30 year treasury bond 12 years ago, so there are 18 years left until the capital is reimbursed, then is it still considered a 30 year bond on the x-axis of the yield curve?
Lorenzo Marchetti nice question... Who is answering this??
The time remaining until maturity would be on the x-axis
@@androidboss559 thank you for your answer.
This means that the y-axis values are an average of the same "remaining until maturity bonds"?.
@@CaravaggioRoma In general the yield curve tracks the time varying interest rates from period 1 to 30 or more. The bond is a 30-year bond but has 18 years to maturity (owner held it for 12 years then sold it) so on the yield curve you would match it on the x-axis as 18 and it would show its current yield on the y-axis. Otherwise, if you held the bond since day one till maturity you would have the yield to maturity which is the annualized rate of return on a bond assuming you hold it to maturity.
You can look on the US Dept of Treasury website for historical current and future bond yields of varying time denomination.
@@androidboss559 thank you! I will have a look.
it's scary how accurate this was. Good predictions and i think there will be a bigger downturn to come after this.
This was excellent. Thank you!
Really well explained. Thanks
Great video.
Thanks a lot sir , that was very helpful , you made my day !
Since one end of the yield curve is subject to manipulation, the question should be how fast does the other end react? If the 10 year t-bond reacts slowly, then manipulating the 2 year end would also manipulate the yield spread. In that case, it's rather pointless to point to any implications of the yield spread, right? Also, does that effect all assets equally? It might be interesting to compare the yield curves to housing. The higher the yield spread is, the more attractive long-term investments are, theoretically. New homes are often built by borrowing short term loans like bridge loans first, whereas existing homes are often financed by long term loans from the get-go. So demand for one over the other ought to show a similar story, right?
Great insights for the video, which tool and how you make the graphs and content for it?
term structure of interest rates & yield curve both are same .
Very well explained .
One question comes to my mind ,what will happen if China and Japan starts selling or dumping all or half of the US securities at a lower rates ?
Over here in Australia, the property market is tanking, the banks have about 60% of their loans in mortgages (much of which are in the subprime category). The banks have tightened credit due to a Royal Commission into misconduct in the banking and finance sector.
Household debt at record levels. Wages are stagnant. Over priced properties. So, yes the yield curve seems to be in line with what is happening here.
Also heard that central banks are winding back QE, so less share buy backs for companies. Maybe now we'll see how companies are really performing.
I've been meaning to dive more into the Australian economy. I've read that the country hasn't had a major recession for a very long time. It'll be interesting to see how the country handles these coming challenges...best of luck over there!
How much has Australia housing market been falling?
We will but it’s not a private sector monster this was created by central bankers. Low interest rates have made business dependent on cheap money. When rates rise it will begin to fall apart.
@@naturalLin About 10% nationally in an 18 month period. More here if interested www.abc.net.au/news/2018-12-10/how-hard-has-australias-property-downturn-hit-your-suburb/10588960.
How much it will feed into the real economy is yet to be seen, I think international factors (commodity prices, trade wars etc.) are probably more important as to whether we avoid a recession.
2:12 “Bonds are a debt after all. And like most debts, they need to be paid back at some point”
LOL. I see what you did there
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That was a very good explanation!
finally someone that explains it good
Thank you so much for your explanation, I am from Bolivia and I will intend to make a yield curve for my country, I will use a method of cubic splines, however it is not clear to me what does it mean if the yield curve has a hump?
I believe it’s common for yield curves to have humps. I don’t believe it’s particularly meaningful, though I could be mistaken!
Hi Fabian, it is important to think of the players in the yield curve. Often those in the very long term bonds are insurance firms that will never sell and hold a 30 year bond to maturity. So in that case the long terms will not be sold for medium term. It’s called preferred habitat theory.
@@callum938 thank you so much... I'm reading all the YC theory, because I'm searching information, and your coment Is very helpful, thanks from Bolivia