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<p>[QUOTE="Clawcoins, post: 3254145, member: 77814"]The 2 and 5 year bonds inverted yesterday.</p><p>If the Fed raises rates this month, the 2 and 10 yr may also invert or be close to it.</p><p><br /></p><p>Normally the longer term debt gets a higher return. In this case now the 2 yr bond has a higher yield than a 5 yr bond. So why get the 5 yr?</p><p>If 2 goes over 10 then we have to think about long term debt and how it affect consumers.</p><p><br /></p><p>This deals with lending money. In a totally watered down explanation, for an example, you deposit money into a bank at a small interest rate, they then loan that money out at longer term loans at a higher interest rate .. which varies by the Fed's policies. Of course banks deviate using their own formulations but when it inverts technically Long term money bring in less revenue than what they pay you for your short term money, so they lose money.</p><p><br /></p><p>The Feds currently hold about $4 trillion in long term securities, which includes over $1.7 trillion in mortgages. Why would banks want a long term mortgage loan when they can make more on short term loans?</p><p><br /></p><p>Think of when we got out of the recession .. banks didn't want to loan to anyone. I went so far as to offer a $5k cash collateral to get a $5k loan so I could open a biz acct at a certain bank. I was denied. There was no RISK, 0% as I was going to give $5k collateral for a $5k loan. Go figure, that's how tough it was back then.</p><p><br /></p><p>But with short term treasuries yield being more than even S&P annual right now, short term treasuries are the way to go over the general stock market and mid term treasuries. If inversion of the 2/10yr, no ones gonna want long/mortgage backed securities. Of course, the Fed is holding and rolling over all the quantitative easing stuff which would help long term rates .... the Fed is the Fed's own enemy right now.[/QUOTE]</p><p><br /></p>
[QUOTE="Clawcoins, post: 3254145, member: 77814"]The 2 and 5 year bonds inverted yesterday. If the Fed raises rates this month, the 2 and 10 yr may also invert or be close to it. Normally the longer term debt gets a higher return. In this case now the 2 yr bond has a higher yield than a 5 yr bond. So why get the 5 yr? If 2 goes over 10 then we have to think about long term debt and how it affect consumers. This deals with lending money. In a totally watered down explanation, for an example, you deposit money into a bank at a small interest rate, they then loan that money out at longer term loans at a higher interest rate .. which varies by the Fed's policies. Of course banks deviate using their own formulations but when it inverts technically Long term money bring in less revenue than what they pay you for your short term money, so they lose money. The Feds currently hold about $4 trillion in long term securities, which includes over $1.7 trillion in mortgages. Why would banks want a long term mortgage loan when they can make more on short term loans? Think of when we got out of the recession .. banks didn't want to loan to anyone. I went so far as to offer a $5k cash collateral to get a $5k loan so I could open a biz acct at a certain bank. I was denied. There was no RISK, 0% as I was going to give $5k collateral for a $5k loan. Go figure, that's how tough it was back then. But with short term treasuries yield being more than even S&P annual right now, short term treasuries are the way to go over the general stock market and mid term treasuries. If inversion of the 2/10yr, no ones gonna want long/mortgage backed securities. Of course, the Fed is holding and rolling over all the quantitative easing stuff which would help long term rates .... the Fed is the Fed's own enemy right now.[/QUOTE]
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