Wednesday, November 16, 2005

Inverted Yield Curves

I read an interesting article in today's journal about bonds.
The difference between the yield of the 2 year Treasury note and 10 year Treasury note is less than 0.09 percent. Historically the average is around 0.75 percentage points, but now we're closer to an inverted yield curve when the short term yields become higher than the long term rates.
Here's a quote from the article: "In the past three decades, the Fed has tightened eight times and inverted the curve five of those times. And of those five, all landed the economy in recession a year later." This, along with a possible peak in the housing market, Americans not saving, and rising costs (example: packaging costs are going up so Kraft will pass those higher prices to the consumer), may bring hard times according to some.

I think I'm going to subscribe to Barron's. I just got a note in the mail and I can get a 1 year subscription for only $72. I'm fairly sure this is the cheapest I've ever seen the subscription and it's a good newspaper. I figured I'll start it in this month since November expenses are actually really low so far.

1 comment:

Chrees said...

For what it's worth, Greenspan has been quoted several times that he is not worried by an inverted yield curve. (This may be mentioned in the article) His reasoning is that the flow of funds have changed dramatically since the last time this happened.

I don't know that I buy "this time is different" completely, but I think there is some truth to it. But I wonder if it is more of difference in outlook over inflation between the bond market and the Fed.