Inverted yield curve (again)

al_yrpal

Interesting article in today's Times money (which is getting thicker as more ad money pours in on what is a better ISA selling season) http://business.timesonline.co.uk/article/0,,8214-2055667,00.html

cloud_dog

Another article in a similar (though cautious) vein.

http://www.kitcocasey.com/displayArticle.php?id=557

The web site is quite good for information and reports although you need to bear in mind that a lot of the posters offer these as a way of trying to get you to sign up to their websites / bulltins.

cloud_dog

EdInvestor

THe bond/gilt markets have been in a mess for some time now and nobodyu seems to know why.My guess is it's part of the adjusment to the low interest rate/ low inflation environment, which is affecting pretty well everything else as well, ranging from annuity rates to house prices to forecast equity returns.

free4440273

Certainly, the author is sanguine. I beg to differ(http://forums.moneysavingexpert.com/showthread.html?t=129780). I need to be careful - I might get called a wacko again! For me, an inverted yield curve is just that - inverted. As I said before, the worrying thing for me is that the recession has not yet occurred. So, when it does occur, it will be longer in duration, more unsettling and Mr Bernanke will be left in a quandary: he might just think to himself, 'hmmm, a country with zero savings and a gargantuan trade deficit deserves all it gets...' Come the reckoning - stagflation now on the horizon... :eek: Just read the article on http://www.kitcocasey.com/displayArticle.php?id=557: that's far more in line with my reasoning; I only read it after I posted.

cloud_dog

My main train of thought going forward is wrt the dollar and all that foreign owned debt comming home to roost. The below article is another interesting read. Can't say I hold with everything it offers but there are grains of information in there. (as previously noted please read the link but don't take it as gospel).

http://www.safehaven.com/article-4676.htm

Free, I think the reason you may get a hard ride from posters is because you do not do the simple and obvious thing of posting any research information, or links to it (good, bad, or indifferent).

As an aside (though people reading this thread might have an interest) does anyone know if the BGI Gold EFT is available in the UK - I'm assuming not since I cant seem to find it, and yes, I've e-mailed the company for clarification just thought I'd ask before trying to ring them.

cloud_dog

Deemy

The way I see it an inverted yeild curve is discounting lower inflation in the future, not necessarily a recession, which basically says that China , India and others will continue to exert deflationary pressures on prices in the western economies.

But on the otherhand we can see commodity bull markets taking off which imply higher producer prices

So that implies the long dated bonds are pricing increased productivity i.e. new technology.

What else ?

What about the efficient market theory ?
I.e. that the market would /should result in similar long / short dated bonds due to arbitraging between them.

And that the only reason for the yeild curve anyway was cos of goverments continually printing money i.e. issuing bonds !

What ive noted that the money supply in america has fallen from about 12% over a year ago to about 3% on recent figures. (working from memory as I don't have the exact stats at hand). So maybe thats the reason ?

Oh well what we should be asking is how to profit from the inverted yeild curve.

Which basically for me is tryign to id the conditions prior to the snapping of the yeild curve back in line with historic norms, which means when do the goverments go on their next big spending spree ! This usually occurs as an economy goes into a recession... as the goverment finally starts printing money,though really the snapping in my mind would occur as their is a shift in market partifipcants expectations of the recession worsening to expecting a recovery ! i.e. growth, which would imply higher future interest rates.

But when ? Where are we along that curve? The market is discounting a recession. YES !
YES ! Thats what I settle with at this time ! Which implies higher bond prices.

EdInvestor

Roger Bootle article attempts to clarify - with more success than most, IMHO

The message for small investors would seem to be: steer well clear of the bond markets until these characters figure out what's going on.

Deemy

EdInvestor wrote:

Roger Bootle article attempts to clarify - with more success than most, IMHO

The message for small investors would seem to be: steer well clear of the bond markets until these characters figure out what's going on.

But Bootle has a crap track record, did he not say the property market would crash about 3 years ago ?

I agree it is confusing, well the bond chart is anyway, sideways to up, which suggests a long-term corrective pattern. So in the immediate future this side to up trend is to continue but further on... ???

ReportInvestor

Good news for Gordon Brown and the UK's long term finances that he could issue lots of low cost long term debt.

Roll on the New Labour 4th Term.

EdInvestor

Deemy wrote:

But Bootle has a crap track record, did he not say the property market would crash about 3 years ago ?

Yes, but he's not making any predictions in the article just trying to bring some clarity to this rather baffling issue.

The point seems to be that the US bond market is being distorted by the abnormal strong demand from Asia for bonds and the UK market is being distorted by the extra strong demand from pension funds for gilts to match their liabilities.

Thus neither bond market is behaving normally.

On this basis there doesn't seem to be any reason for getting worried about the yield curve ( or for that matter the general behaviour of the bond market as a whole) as a predictor of the future of the general economy.

blinko

so am i right in thinking that you guys are saying that the markets arent going to crash or at least not the equity just the bond !!