Great explanation of how an inverted curve helps create a deleveraging cycle, Alf! I really enjoy that fact that you matter-of-factly integrate the ponzi aspect of our financial system that should be obvious to all at this point: it's a grow or die world as far as the global mountain of debt goes, given the longer term disinflationary forces at work. Given that, the level that real rates can rise to gets lower and lower before rates must either turn back down again or start a deleveraging bust of one size or another.
Great piece Alf... Enjoyed the article. I knew Treasuries have credit risk, but thought it was so small market didn't price it. Didn't realize there is a credit spread... :)
Really like this info. For a guy like me that is relatively uninformed it would be helpful to label exactly what each axis of the chart is exactly to remove any ambiguity for the uninformed. Just a suggestion from the guys like me that need help.
Hey Alf. Thanks for this wonderful piece; and for all the invaluable macro insight you offer us.
One question if I may - why is it that when the yield curve is inverted, the marginal cost of refinancing and accessing new credit short-term increases? Many thanks!
Mr. Alf, what are your thoughts on using the classic definition of a yield curve inversion (as defined by Dr. Campbell Harvey) which is when the 10-year treasury yield is below that of the 3-month treasury yield? What are the pros/cons of this classic definition compared to yours? Isn't it true that the classically defined inversion correctly predicted every single recession with 100% accuracy going back to the 1970s?
Just eye balling your chart the difference in the 5yr 30yr OIS looks closer to 46 than 16...?? Although I do understand why you"re using the OIS I just don't see that it's showing anything more critical than the traditional method??
Great piece. So, this is the rationale for plotting credit spreads against the yield curve (inverted and shifted forward by 24 months). It tells you about the timing - unfortunately only more or less - of the credit-spread blow-up
Thanks Alf. Learning loads. I have been following you on Twitter. Investing.com has free access to IRS swaps (USDSB3L2Y=,USDSB3L5Y=, USDSB3L10Y=, USDSB3L30Y=).
This explanation on yield curves helps my understanding greatly. The "why" part especially. It fills in some gaps in my mind that other writers created. Much appreciated.
Great explanation of how an inverted curve helps create a deleveraging cycle, Alf! I really enjoy that fact that you matter-of-factly integrate the ponzi aspect of our financial system that should be obvious to all at this point: it's a grow or die world as far as the global mountain of debt goes, given the longer term disinflationary forces at work. Given that, the level that real rates can rise to gets lower and lower before rates must either turn back down again or start a deleveraging bust of one size or another.
Alf
Great analysis thank you. Now, can you go further- how and when do we prepare for it.
Great piece Alf... Enjoyed the article. I knew Treasuries have credit risk, but thought it was so small market didn't price it. Didn't realize there is a credit spread... :)
Really informative, easy to read article! I will definitely recommend it for friends/fam looking to expand knowledge on the subject - Thanks Alfonso!
Thank you for taking the time to help us understand these important market indicators
Great Article, for an equity guy, why does taking the OIS curve removes counterparty risk?
Hi Alfonso,
Wonderful post. Thank you very much for writing it.
Best regards
Javier
i like how you called deleveraging the devil. Its something the elites should of just got out of the way years ago
Really like this info. For a guy like me that is relatively uninformed it would be helpful to label exactly what each axis of the chart is exactly to remove any ambiguity for the uninformed. Just a suggestion from the guys like me that need help.
Thanks for bearing with me.
Hey Alf. Thanks for this wonderful piece; and for all the invaluable macro insight you offer us.
One question if I may - why is it that when the yield curve is inverted, the marginal cost of refinancing and accessing new credit short-term increases? Many thanks!
Mr. Alf, what are your thoughts on using the classic definition of a yield curve inversion (as defined by Dr. Campbell Harvey) which is when the 10-year treasury yield is below that of the 3-month treasury yield? What are the pros/cons of this classic definition compared to yours? Isn't it true that the classically defined inversion correctly predicted every single recession with 100% accuracy going back to the 1970s?
Just eye balling your chart the difference in the 5yr 30yr OIS looks closer to 46 than 16...?? Although I do understand why you"re using the OIS I just don't see that it's showing anything more critical than the traditional method??
What does the impulse mean, how do I measure it and/or find it. Sorry if this is a stupid question
Great piece. So, this is the rationale for plotting credit spreads against the yield curve (inverted and shifted forward by 24 months). It tells you about the timing - unfortunately only more or less - of the credit-spread blow-up
Thanks Alf. Learning loads. I have been following you on Twitter. Investing.com has free access to IRS swaps (USDSB3L2Y=,USDSB3L5Y=, USDSB3L10Y=, USDSB3L30Y=).
This explanation on yield curves helps my understanding greatly. The "why" part especially. It fills in some gaps in my mind that other writers created. Much appreciated.