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Sledgehead

Yield Curve Inversion

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Interesting! (Wonderful visual way to show it too).

Didn't realise inversion got THAT strong a few weeks ago. Now seems flattish though.

US yield curve seems to be sensible though. Guess the market doesn't see a recession coming there...

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A bit more info:

Yield curves usually increase with time.

If I lend money to you, at say 5%, over 5 years, there is a small chance of default, that you might not pay me back.

As time moves on, the chance of you defaulting increases (you may get hit by a bus,or have a heart attack), so to offset this risk I would want a greater return, say 5.5%

But what is happening right now is that investor's are buying long dated (30 year) debt at lower rates, ie they're accepting less money for taking on a bigger risk.

Why are they doing this? Surely this doesn't make sense?

Well they believe that interest rates will go down as the economy tanks, and by holding long dated debt they can protect their investment.

So they're buying the long end of the curve.

There are many leading indicators of recession, car sales is one (which have dropped dramatically), but the inverted yield curve is the most reliable.

Edited by BandWagon

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The page also compares UK and US, with the US looking far more healthy. Does this mean the pound is going to weaken with respect to the dollar?

I have a strong interest in this question!

frugalista

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The page also compares UK and US, with the US looking far more healthy. Does this mean the pound is going to weaken with respect to the dollar?

I have a strong interest in this question!

frugalista

Me too! I am going to NYC for New Year and will need at least $500 spending money. :rolleyes:

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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