The yield curve has been in some type of inversion since December of 2018. In a yield curve inversion, longer dated securities yield less than short term debt. This turns risk on its head – in a well functioning debt market, investors should be paid more to lock up money for a longer time. While […]
On this page we examine the history of the relationship between long term and short term government debt yields in the United States. We’re especially interested in when the yield curve inverts – or short term borrowing costs exceed longer term costs. In a recent inflation article, we examined the yield curve measured by the […]
For those with a close eye on the market, it’s hard not to notice a sharp selloff in bonds following the most recent election. Your humble writer doesn’t believe he can predict which ways the winds will blow in this regard but wanted to share what the potential causes are and what it could mean farther […]
One of the interesting things you can do with Treasury yield data is get a feel for what the markets expects to see in terms of inflation over the next thirty years or so. By subtracting real (read: after inflation) yields on inflation protected securities from the yield on non inflation protected securities, you can […]
One important thing to have an idea of – for personal and business reasons – is the amount of inflation expected in the future. Think about it – by having a reasonable number to plan for the erosion of the value of your money, you will better be able to make decisions on what loans to take out, what purchases to make, and how to invest.
Luckily for you, there are a few ways to gauge these predictions, which don’t resort to guessing, praying, or going to a fortune teller. The methods are also more sophisticated than taking the last few years worth of data, drawing a trend line, and attempting to extrapolate future results.
One of the things we like to do here at Don’t Quit Your Day Job is to reveal interesting things hiding in plain sight. One of those things: subtracting the Daily Treasury Real Yield rate from the Daily Treasury Yield rate gives you a good idea of the market’s expectations of inflation. Even though media prognosticators won’t agree on whether we’re in for a deflationary era, hyperinflation, or a whole lot of nothing, you can get a reasonable prediction from market data. Our explanation is below, along with the limitations of this method.
It’s been a while since we’ve checked in on inflation expectations in the market for treasury bonds ant T-Bills. However, with recent expansionary programs everywhere like, such as the program lovingly named Quantitative Easing 2.0. Let’s look at inflation expectations before, during rumors, and after the announcement (today…) buffered around the reports of US Fed Quantitative Easing.
I haven’t recently taken a look at what the Treasury market is telling us about inflation… but that’s now changed, and I’m here to share with you. The market predicts continued smooth sailing on the currency front. My method is the very crude subtract real treasury yields from the yield curve. Currency stability is probably here to stay in the meantime, what with the only reasonable alternative in flux and everything… and the market reflects that truth.
How did you react to the stock market’s (defined, in my mind, as the S&P 500 index) recent precipitous drop? If you’re like many investors, you moved out of ‘risky’ assets such as stocks and into ‘safe’ assets such as money market funds and stable value funds. Unfortunately, the seeming safety of fixed income investments is a mirage… hidden forces, such as the danger of inflation, make ‘safe’ investments less safe than first glance. Paradoxically, the recent movement to safer portfolios has put many people at risk for a reduction in the real value of their money in inflation adjusted dollars.