Interest rates are headed downwards as global bond yields are falling quickly again

At the start of 2019 we wrote that 2019 will be a year that will be different with interest rate hikes slowing or interest rates even reversing.

Earlier this month the European Central Bank said interest rates would remain at record lows at least until the end of the year and then last week this was followed by the Federal Reserve saying that it does not expect an interest rate rise for the U.S. for the rest of 2019.

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Government bond yields have been falling globally

We haven’t written about government bond yields recently but there has been a lot of action in the bond market. Government bond yields have been falling globally which are an indicator that markets are expecting stagnant or falling interest rates. 10-year government bonds are the most tracked and traded and yields have mostly fallen compared to a year ago.

The U.S. 10-year Treasury bond yield is now at 2.65%, down 19 bps from a year ago.

US 10 year government bond yield 20190210 1year change

 

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Those three U.S. recession indicators – how near or far are those from being invoked? End of 2018 edition

We wrote about three slightly different U.S. recession indicators that have been predictive of the past few recessions and have been tracking how near or far are those from being invoked, here’s where we are at the end of 2018,

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Red everywhere – Here’s how Equity, Commodity and Bond Markets have performed over the past year

Here is the 1-year change for Equity, Commodity and Bond Markets (all as of end of day December 13, 2018),

Equities

Red almost everywhere with China down 20%, Germany down 16%, South Korea down 15%, U.S. almost flat (Dow Jones and S & P 500 flat with NASDAQ 100 up 6%) and star performer Brazil up 21%

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The yield curve inversion plus why banks and banking stocks are impacted by it

The U.S. 10-year Treasury constant maturity yield minus the 2-year Treasury constant maturity yield spread has been a good indicator of past recessions. Yield curve inversion which happens when the spread turns negative and has preceded the last seven straight recessions. The 10-year Treasury constant maturity yield minus the 2-year Treasury constant maturity yield is the lowest since the last recession at only 10 bps.

10y minus 2y yield December 5 2018
Data Source: Source: Federal Reserve Bank of St. Louis

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Those three U.S. recession indicators – how near or far are those from being invoked? September 2018 edition

We wrote about three slightly different U.S. recession indicators that have been predictive of the past few recessions and have been tracking how near or far are those from being invoked, here’s where we are in September 2018,

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China hasn’t been selling U.S. Government Bonds despite trade tensions

Is China selling U.S Government Bonds (Treasury Bills, T-Bonds and Notes) given the trade war tensions between China and the United States? The simple answer to that is no. Actually, no major foreign country holder of bonds is really selling.

But you might wonder what is going on if you make a chart look like this,

China holdings of US government bonds
Data Source: U.S. Department of the Treasury

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