yield curve lingo

Amazon ggugdyn
Aug 14 10 Comments

can someone explain this in non economics language ? is yield curve how much return we get on investment ? what is spread ? whats up with 2 yr and 10 ?

Wall Street’s most widely watched gauge of the yield curve’s slope, the spread between the 2-year Treasury note yield and the 10-year inverted Wednesday morning, flashing the clearest signal to date that the U.S. is set to face an economic recession, but that doesn’t have to mean doom and gloom for stock investors.

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TOP 10 Comments
  • Google Devil
    Yield curve = Why the hell short term loan is expensive then long term loan? Is something fishy ?
    Aug 14 0
  • Tesla / Ops
    Bigballer

    Tesla Ops

    BIO
    bbb
    Bigballermore
    Yield curve is a chart of the rate of return on various govt T bonds over time. Its consider the risk-free rate since you get that guaranteed vs. riskier stocks. The “spread” is the delta between the 10 and 2 year returns.

    If there is economic growth, then you would expect to be compensated more for bonds in the future so the spread is higher. Inversion means there’s a perception of short-term growth that will reduce in the future.
    Aug 14 2
    • Facebook HotChips
      You explanation of what the Yield Curve is spot on.
      The reasoning on spread, not so much. Spread b/w 2 year and 10 year bonds should be positive in any normal economy - growth or no growth. Analogy - 30 year mortgage has higher interest rate than 15 year, no matter what the bank expects house price growth rate to be.

      Inversion of spread happens if people expect the Fed to cut rates in the future. So future expectation of rates is lower than current expectation.

      Of course, Fed cuts rates when growth is below target. But it could also cut rates in other scenarios - like inflation being below target.
      Aug 14
    • New / Product
      ʕ•ٹ•ʔ

      New Product

      PRE
      Amazon
      ʕ•ٹ•ʔmore
      @hotchips. Correct. 👍
      Aug 15
  • This comment was deleted by original commenter.

    • Microsoft
      Tier 1

      Microsoft

      BIO
      #1 in Prestige
      Tier 1more
      No no no it’s the opposite
      Aug 14
  • Uber / Product taufyoiq
    In simple terms yield is the interest on Treasury bills. Spread is the difference between the interest rate on a 2 year bill (think loan) and 10 year bill. Normally one would expect that the longer the term you “lock” the money for the more interest % you earn. In this case the “spread” is negative. This means that people are not confident about the short term outcome of the debt market. This is a leading recession indicator
    Aug 14 2
    • Facebook HotChips
      Good explanation - except the last part.
      Negative spread just means that people expect rates in the future to be lower than today. 'Lock in these great rates for 10 years, rates are going down!'

      Maybe that's what you mean by people 'not being confident about the short term outcome of the debt market'
      Aug 14
    • Uber / Product taufyoiq
      True but also note that yields on government debt fall when bond prices rise. And prices (especially for longer-term bonds) rise when investors are seeking safety from riskier assets.

      The last sentence should have been debt or stock market
      Aug 15
  • Facebook HotChips
    As someone famous once said, inverted yield curve has predicted 12 out of the last 5 recessions.
    Aug 14 0
  • Oscar 🐨koala
    I’d add: what factors are considered in the curve
    Aug 14 0

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