Essay Title: 

bond yield curve

April 2, 2016 | Author: | Posted in investment, mathematics and economics

Questions /Answers

What is driving the inversion on the short end and long end of the curve ? comment

Macro factors , such as the state of the economy and the Federal Reserve ‘s policy position affect the movement of the yield curve on the short end , while unobservable factors affect the long end . More specifically , macro influences like under-funded pensions and the rising cost of health care , have hindered investing . On the long end , level slope and curvature , are determined by the macro effects

Given the historical predictive power of a recession [banner_entry_middle]

led by an inverted yield curve , reconcile the economy ‘s strength verses what we are seeing in the bond market

Currently , the war in Iraq provides us with an opportunity to boost the economy should we claim victory . This is an economic strength . However different aspects of the economy are to be considered : international trade , government expenditure and taxes can teeter on either side of strength and weakness . With respect to the bond market , as inflation increases , the dollar ‘s value decreases , thus lowering bond prices While the dollar ‘s value is low , stronger currencies become more attractive to investors , while U .S . currency becomes less attractive

If we are about to head into a recession , what asset class typically benefits , and why

The most beneficial asset class during times of recession has historically been agricultural commodities . This is because subfields of agricultural commodities perform well in both early and late recession . In addition , historically , they have yielded the highest overall return , unlike energy commodities , breakfast commodities and others , which have yielded positive early and negative late , or vice versa , depending on the commodity

Finally , what is going on here ? What are the forces driving the curve why is it happening , and how can you use this information to make money trading

The war in Iraq , constant rate modifications and the slow down in spending within the economy are all factors in driving the yield curve to an inverted position . Because the yield curve typically inverts anywhere from 12-18 months before a recession , investors are able use this information to determine that a recession is in the works , and what types of investments might offer greater returns during the recession such as short term bonds , which offer better rates when the yield curve is inverted . Investors can also use this information as a benchmark for pricing other fixed-income securities… [banner_entry_footer]


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