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Thursday, January 3, 2019

The US treasury's situation is getting chaotic.

The chaotic situation (yield inversion) is depicted below.

2-year yield > 5-year yield
2-year yield > 3-year yield
1-year yield > 7-year yield
1-year yield > 5-year yield
1-year yield > 3-year yield
1-year yield > 2-year yield
6-month yield > 5-year yield
6-month yield > 3-year yield
6-month yield > 2-year yield
6-month yield > 1-year yield

http://sg-stock.blogspot.com/2018/12/the-us-markets-fell-heavily-because-of.html

The investors are buying the longer maturities rather than the shorter maturities because they've lost faith in the short-term debts out of fear that the government has short-term cashflow problems.  This is understandable from the investors' perspective because of the US government shutdown.  Nobody will believe that the US government will shut down for a long period and this is the reason that the investors will still buy the longer dated treasuries.

1 comment:

Eric Ho said...

What does a yield curve inversion signify?

Basically, it is a tightening monetary condition because access to cheap money is no longer available and investors are demanding a higher interest rate for the short-term risk they are taking.