
How to Flip a Yield Curve - newsreview1
https://nationalinterest.org/blog/buzz/explainer-how-flip-yield-curve-77706
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nostromo
It's a strange time.

On one hand, the Fed is right that the US economy is strong and does not need
stimulus.

On the other hand, treasuries are a _global market_ now. And the US is pricing
its debt at _insanely high rates_ given that all other advanced, stable
economies are paying zero _or less_. This is leading to capital world-wide
gobbling up as much long term US debt as possible, and inverting the curve.

The best path forward would be for the Fed to lower rates closer to market,
based on the US's peers, like Europe and Japan. And for the Federal Government
to raise taxes gradually (they already are doing this in a sense with tariffs)
and lower spending -- so they can react to any future recession with stimulus.

The Fed can act unilaterally, but the harder part is for Congress to put a
little money away for a rainy day.

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whatok
> This is leading to capital world-wide gobbling up as much long term US debt
> as possible, and inverting the curve.

This is not true. TIC data [1] shows a 6.6% increase YoY. Hedging FX risk has
made US Treasuries unattractive even with the yield pickup. Most large
purchasers (that matter) hedge their FX risk.

[1]
[https://ticdata.treasury.gov/Publish/mfh.txt](https://ticdata.treasury.gov/Publish/mfh.txt)

~~~
nostromo
That's like almost half a trillion dollars YOY. Not a small change.

~~~
whatok
It's not a large number relative to the combined balance sheets of the ECB,
PBoC, and BoJ.

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fallingfrog
The more interesting question is, how low can interest rates go? We’re still
in an economic expansion and interest rates are already the lowest they’ve
been in history. How far negative can we push them when the expansion finally
ends? (Seriously asking, I’m not an economist).

I mean it looks for all I can see like something is really, really screwy
about the whole world economy right now. Banks are charging for storing
people’s money and paying to give it away in Denmark. That does not sound like
a solvent financial system. It’s like when you’re trying to get sound out of
your stereo and you can’t hear anything, so you turn every knob up all the
way, then you notice, oh, this cable is unplugged, and you jiggle it and blam,
blow the speakers out. Or in Chernobyl, where they backed the control rods way
out but then turned up a bunch of other stuff, getting a very slow reaction
but in an extremely unstable state that suddenly went exponential when they
tried to shut it down. It just feels like the system is, in some sense,
_upside down_. But, I am not an expert.

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aakilfernandes
> It was, therefore, just a matter of time before the discovery that inverted
> yield curves often anticipate recessions resulted in the world’s first
> yield-curve induced panic

This is backwards from what I understand. It's the bond market pricing in an
economic downturn (lowering of interest rates in the medium term)that inverts
the yield curve. The yield curve is how the bond market "speaks". The author
seems to be implying the yield curve is some kind of enigmatic, second-order
effect not an explicit result of the bond markets view of the economy.

~~~
ak39
If I’m not mistaken, the panic spoken of here is in the equities markets. No?

~~~
aakilfernandes
The panic was in the equities market, but was triggered by the signals from
the bond market.

