Analysis of current economic conditions and policy
Bond Yields: Two Pictures
Over 5.2%:
Part of the reason?
Source: NABE Policy Survey, 28 Sep 26.
Who would’a thunk a massive tax cut, open ended war, and slamming the economy with mass deportation, tariffs and uncertainty would result in this outcome?
10 thoughts on “Bond Yields: Two Pictures”
New Deal democrat
I haven’t been able to find the post, but some months ago I asked when the recession signal from the 2022-24 yield curve inversion could be considered a false positive.
At this point we are 50 months past the 10-2 year inversion, and 38 months past the 10y-3m inversion. We are also 25 and 11 months pst their re-normalization. So by my counting, we are well past the point where those signals were valid.
New Dear democrat: Yes, I think most would agree that’s a false positive; I’m working on explaining why we got that signal, and no recession occurred. Remember, it could be probabilities (we use a 50% threshold?), wrong model/omitted variables (other variables should have been included), etc.
Anonymous
Also worth keeping in mind that the other false positive was during LBJ’s “guns & butter” massive fiscal stimulus. This time around, we had the massive COVID stimulus followed by T—-p’s plutocrat+ICE stimulus.
New Deal democrat
Also worth keeping in mind that the other false positive was during LBJ’s “guns & butter” massive fiscal stimulus. This time around, we had the massive COVID stimulus followed by T—-p’s plutocrat+ICE stimulus.
Macroduck
I wonder whether low real rates had something to do with the false signal from the yield curve.
The real yield on three-month billls barely poked above 2.5% during the recent inversion, and the real yield on 10-year notes never did. Other than the Covid episode, real yields have been above 2.5% during every curve inversion sinve 1980. Inversion is the recession signal, but not the recession cause. The causal link between inversion and recession is presumably a high cost of borrowing. Borrowing costs weren’t all that high in 2022-2023.
Worth noting is that recession was avoided in 2022-2023 despite Fed tightening and contractionary fiscal policy. The deficit was high in that period, but coming down rapidly. Here’s the Hutchins fiscal index, showing how large the fiscal drag was:
Pent-up demand for workers and a ton of household savings seem to have been enough to overcome the drag from fiscal and monetary policy. Both were legacies of Covid, so unlikely to save us next time.
joseph
Zuckerberg today: “We believe superintelligence will create significant new opportunities for all people and businesses.”
What good is being a billionaire if you have to routinely kiss Donald Trump’s fat a*s at his demand. How embarrassing.
Lava
There are no “mass deportations”. Nor is inflation ex Iran running that high. Never follow border patrol on amount of illegal immigrants in the US. They lie alot and are run by Republican liars. Look at the downward revisions given in the Obama era now admitted?? ICE by policy has to book so many illegals per month. The problem is they can’t really do that. So they lie. Make up bookings. Books citizens……then release them. It counts. There are more illegals at 50 us businesses than under Biden I have reviewed for the Democratic party.
Macroduck
Hang on…is that you, Connie, Johnny Mary Rosh?
So there’s this Connie/Johnny/Mary Rosh person who often tells us in comments that we should ignore the data and instead believe him/her/whatever. And that Connie/Johnny/Mary Rosh person has very specifically told us that he/she/whatever knows that deportation isn’t really ahppening and hasn’t had any effect on the labor market. The other thi g to know is that Connie/Johnny/Mary Rosh is always wrong about everything. Just always.
So Lava, if you are repeating something that Connie/Johnny/Mary Rosh has said, you must be wrong, too. Always.
baffling
unemployment did not rise significantly, because even though rates were increased, they did not increase too much. I have argued in the past, the Volcker solution was simply evil. rates do not need to be increased so much as to cause a draconian recession and punish labor. Volcker was trying to teach a hard lesson on inflation, which was not necessary to cure the problem. the fed was able to balance things nicely this time around. Biden did what was necessary to pull us out of the covid disaster, and the fed gave us a smooth landing without drama. trump has done the exact opposite in the past year, creating drama where it need not exist.
joseph
Polls must be really bad in Iowa. Trump today announced a $15 billion steel mill to be built in — Iowa??
This is Mesabi Metallics which declared bankruptcy in 2015 then made a deal with Minnesota in 2018 to build a new steel mill in return for tax credits and still hasn’t finished. The Minnesota Department of Natural Resources terminated its mineral rights for contract default, declaring them an “unreliable partner”.
So now the same failed company has announced a new plant in Iowa, just coincidentally where the Republicans are trailing in the Senate race, in exchange for $10 billion in financing from the US Export-Import Bank.
I expect this deal to go through right after I get my $5,000 check from Trump. Mesabi is the Foxconn of Minnesota.
I haven’t been able to find the post, but some months ago I asked when the recession signal from the 2022-24 yield curve inversion could be considered a false positive.
At this point we are 50 months past the 10-2 year inversion, and 38 months past the 10y-3m inversion. We are also 25 and 11 months pst their re-normalization. So by my counting, we are well past the point where those signals were valid.
New Dear democrat: Yes, I think most would agree that’s a false positive; I’m working on explaining why we got that signal, and no recession occurred. Remember, it could be probabilities (we use a 50% threshold?), wrong model/omitted variables (other variables should have been included), etc.
Also worth keeping in mind that the other false positive was during LBJ’s “guns & butter” massive fiscal stimulus. This time around, we had the massive COVID stimulus followed by T—-p’s plutocrat+ICE stimulus.
Also worth keeping in mind that the other false positive was during LBJ’s “guns & butter” massive fiscal stimulus. This time around, we had the massive COVID stimulus followed by T—-p’s plutocrat+ICE stimulus.
I wonder whether low real rates had something to do with the false signal from the yield curve.
The real yield on three-month billls barely poked above 2.5% during the recent inversion, and the real yield on 10-year notes never did. Other than the Covid episode, real yields have been above 2.5% during every curve inversion sinve 1980. Inversion is the recession signal, but not the recession cause. The causal link between inversion and recession is presumably a high cost of borrowing. Borrowing costs weren’t all that high in 2022-2023.
Worth noting is that recession was avoided in 2022-2023 despite Fed tightening and contractionary fiscal policy. The deficit was high in that period, but coming down rapidly. Here’s the Hutchins fiscal index, showing how large the fiscal drag was:
https://www.brookings.edu/articles/hutchins-center-fiscal-impact-measure/
Pent-up demand for workers and a ton of household savings seem to have been enough to overcome the drag from fiscal and monetary policy. Both were legacies of Covid, so unlikely to save us next time.
Zuckerberg today: “We believe superintelligence will create significant new opportunities for all people and businesses.”
What good is being a billionaire if you have to routinely kiss Donald Trump’s fat a*s at his demand. How embarrassing.
There are no “mass deportations”. Nor is inflation ex Iran running that high. Never follow border patrol on amount of illegal immigrants in the US. They lie alot and are run by Republican liars. Look at the downward revisions given in the Obama era now admitted?? ICE by policy has to book so many illegals per month. The problem is they can’t really do that. So they lie. Make up bookings. Books citizens……then release them. It counts. There are more illegals at 50 us businesses than under Biden I have reviewed for the Democratic party.
Hang on…is that you, Connie, Johnny Mary Rosh?
So there’s this Connie/Johnny/Mary Rosh person who often tells us in comments that we should ignore the data and instead believe him/her/whatever. And that Connie/Johnny/Mary Rosh person has very specifically told us that he/she/whatever knows that deportation isn’t really ahppening and hasn’t had any effect on the labor market. The other thi g to know is that Connie/Johnny/Mary Rosh is always wrong about everything. Just always.
So Lava, if you are repeating something that Connie/Johnny/Mary Rosh has said, you must be wrong, too. Always.
unemployment did not rise significantly, because even though rates were increased, they did not increase too much. I have argued in the past, the Volcker solution was simply evil. rates do not need to be increased so much as to cause a draconian recession and punish labor. Volcker was trying to teach a hard lesson on inflation, which was not necessary to cure the problem. the fed was able to balance things nicely this time around. Biden did what was necessary to pull us out of the covid disaster, and the fed gave us a smooth landing without drama. trump has done the exact opposite in the past year, creating drama where it need not exist.
Polls must be really bad in Iowa. Trump today announced a $15 billion steel mill to be built in — Iowa??
This is Mesabi Metallics which declared bankruptcy in 2015 then made a deal with Minnesota in 2018 to build a new steel mill in return for tax credits and still hasn’t finished. The Minnesota Department of Natural Resources terminated its mineral rights for contract default, declaring them an “unreliable partner”.
So now the same failed company has announced a new plant in Iowa, just coincidentally where the Republicans are trailing in the Senate race, in exchange for $10 billion in financing from the US Export-Import Bank.
I expect this deal to go through right after I get my $5,000 check from Trump. Mesabi is the Foxconn of Minnesota.