On this week’s episode of Tape Talk, Quint and Daniel tackle the recent headlines about the inverted yield curve and what that might mean for investors’ portfolios.
What’s A Yield Curve?
While you might not often talk yields at your regular cocktail party, the topic may just come up more as it sprinkled news headlines recently. Unfortunately, though it is critical to the understanding of inversion, the yield curve may be unfamiliar to some. Daniel takes some time to explain just what we’re talking about when we mention this curve in yields.
Just What Inverted?
Over the past couple of weeks, you might have read the news about the inverted yield curve as well as how inverted yield curves are reliable indicators of recession. However, Quint explains just what points in the current yield curve actually inverted and why that might not indicate what many are thinking.
Federal Reserve, In Control?
Looking at yields on the short-end, such as 3-6 months, is a good indication of the Federal Reserve’s influence in rates. The current yields here are very close to the Fed Funds Rate which is the target rate set by the Fed. Going further out on maturities, the market begins to price in what it thinks about interest rates and the economy. What we’ve seen recently is a disagreement by the market of the Fed’s broadcasted tightening. In fact, not long after the market voted on future yields, the Fed indicated its intention to slow further rate rises and balance sheet reductions.
The Fed Owns What?
To wrap up the show, Quint talks about the Federal Reserve balance sheet and what is so stunning about its composition in recent years. To conclude we discuss whether or not the Fed can ever really allow its balance sheet to “normalize” from here or if we now live in a new normal of perpetual quantitative easing.