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Inversion Alert

Inversion Alert

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Inversion Alert

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  1. Inversion Alert Jason Coyle, Mark DeCicco, Luke Ditton, Jagger Doll, Katrina Eggleston Section B; Group C

  2. Bonds • Represent the debt between an investor and a corporation/government • Safe and reliable investment • Have better interest rates than banks do • Short Term Bond • 1 Month Bill - 10 Year Note • Carry Lower Yield=Less Risk • Long Term Bond • 15-30 Year bond • More Yield=Higher Risk due to inflation

  3. “Yield curve is a way to measure a bond investors’ feelings about risk”- Fidelity

  4. Yield Curve https://www.wsj.com/market-data/bonds

  5. What it means to invert • The yield for a shorter term bond is larger than a long term bond • Investors have little confidence in the near future economy because they see it as riskier • A quick inversion could be just a part of the market trend • Some inversions have not preceded recession

  6. Why the U.S. and other countries have it • Map of the economy • Indicator of possible recessions, inflation, etc

  7. List of regions with Yield Curves • Australia • Belgium • Bulgaria • Canada • Costa Rica • China • Finland • France • Germany • Great Britain • Greece • Hong Kong • Italy • India • Indonesia • Japan • Korea • Malaysia • Netherlands • New Zealand • Norway • Pakistan • Philippines • Romania • Russia • Singapore • Slovakia • South Africa • Spain • Sweden • Switzerland • Thailand • United States • Vietnam

  8. What other signs usually follow it? • Federal Funds Rate cut • Operating Costs Rise • Execs “shelve investments” • Higher % Dedicated to Paying off Debt • Increase in Temporary Employment • Less confidence • Unemployment Rises • Other Countries’ Economies Slow

  9. What the Past Tells Us • A “2-10” inversion has preceded every recession since 1950 • Downturn may not happen as late as 34 months after, 22 months on average • Markets rally 15% after inversion on average • Last happened in June 2007 • Fed cut rates starting Sept. ‘07 • In 11 of 13 cases, Fed lagged in cutting rates • After an inversion, lenders tend to tighten credit standards • Is less lending the cause?

  10. Links https://www.cnbc.com/2019/08/14/the-inverted-yield-curve-explained-and-what-it-means-for-your-money.html https://www.washingtonpost.com/business/2019/08/14/recession-watch-what-is-an-inverted-yield-curve-why-does-it-matter/ https://www.investors.com/news/economy/inverted-yield-curve/ https://www.reuters.com/article/us-usa-economy-yieldcurve-explainer/explainer-countdown-to-recession-what-an-inverted-yield-curve-means-idUSKCN1V320S https://www.bankrate.com/personal-finance/smart-money/watch-these-indicators-know-when-recession-could-be-coming/ https://www.forbes.com/sites/simonmoore/2019/08/20/what-key-recession-indicators-are-telling-us-today/#7fd4d3382156 https://www.investopedia.com/investing/bond-advantages/ https://www.fidelity.com/learning-center/investment-products/fixed-income-bonds/bond-yield-curve https://www.investopedia.com/terms/b/bond.asp https://markets.businessinsider.com/news/stocks/yield-curve-inversion-explained-what-it-is-what-it-means-2019-8-1028482016 https://www.forbes.com/sites/leonlabrecque/2019/03/29/recessions-and-yield-curve-inversion-what-does-it-mean/#1f3e78145890