![]() ![]() If consensus became that the Fed would stick at 5%+ for 3+ years the 5-10yr part of the UST curve is rich, while 2s are fair. There's a good thesis for a bear steepener here. In this case, short term rates would stay anchored (based on belief that Fed is done for a while - no hikes, no cuts), while longer term rates catch up. Soooo, maybe we do the bear steepener thing (long term rates rise faster than short term rates). Instead, we have a deeply inverted yield curve.Ĭash and shorter duration instruments are yielding far more than longer dated ones. If the why isn't obvious, look up the time value of money. If you lock those savings up for a decade, you're supposed to get a better return, or what the nerds call a 'term premium'. If you lock up your hard-earned savings in an investment for a month, you 'should' get a little bit of interest. In theory, a healthy yield curve is supposed to be positively sloping. The basic premise: "What if long term bond yields rise?" I'll show my workings properly so that you can pick it apart, and/or completely fade it, then summarise at the end. It's a little convoluted (usually means higher odds it's wrong) while also being quite simple. When might this default setting not apply? Which is why I tend to focus on the risks. Positive drift is a thing, and being long stocks generally has a much higher expectancy than being short. Despite my recent bearish writings, I generally think the default setting for stocks is always up. The inevitable consequence? Seriously, no idea. A tail risk, a potential grey swan event. I don't really know what to call it though. There's something I genuinely want to chat about. You're gonna LOVE this fairytale.Īm I overselling it? Must be the only thing around here that's oversold lads, eh? Genuinely, if you're a stock market bear, grab your tissues and lotion. Until the bears come home and eat Goldilocks (or set her on fire). Stock markets head higher, bulls make money and all is right with the world. Allocating real capital to successful traders □ ![]()
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