I've learned to periodically check the spread between shorter-duration and longer-duration bonds, because whenever shorter duration bonds yield higher than longer duration bonds, this is a fairly reliable recession or bear market indicator.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yieldI'm noticing two things:
a) Occasional small inversions in the 1mo, 2mo, and 3mo durations this month.
b) 20 year treasuries have yielded slightly higher than 30 year treasuries since 10/28.
These inversions have been much smaller than the 15-20 basis point differences seen in fall 2019, much less the 100+ basis point inversions seen in early 2008. More importantly, the historically accurate inversion signal between the 2y and 10y treasuries has yet to occur. Thus, I'm not predicting a recession or bear market, but I'd like to understand the story around these strange signals. The fed is supposed to start tapering purchases "later this month" but I'm not sure why that would cause an inversion.
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htmPlease add your own hypotheses or debunk my hypotheses below:
1) Fed asset buying is relatively higher in the 20y duration than in the 30y duration, and the taper-down of demand for 20y treasuries has propped up their prices and lowered their yield relative to the 30y durations.
2) 30y mortgages compete with treasuries for investor dollars. A constriction in the supply of mortgage securities occurred because of a dip in home sales in August, is forcing investors into 30y treasuries today.
3) Investors are pivoting out of mortgage-backed securities and buying 30y treasuries in their place, anticipating a potential housing meltdown next year as rates are increased, first by lower federal buying of mortgages, and second by the Fed raising rates.
4) The 1, 2, and 3 mo treasury markets have such flat interest rates, the one-basis point differences between them are noise plus rounding errors. This does not explain's today's sudden sell-off in 1 month treasuries, which doubled their yield.
5) Investors in 1mo treasury notes are pivoting en masse to 30y bonds because of dovish comments by Chicago fed president Charles Evans.
6) Investors in short-duration treasury notes are pivoting en masse to increased stock exposure, due to positive seasonality and consumer spending data.
