Riding the Curve

During periods of economic growth, long-term government bond yields typically trade 1.5% - 3.0% above short-term bond yields as fixed income investors demand a higher return on their capital for longer duration investments. As the market cycle matures, while short-term yields generally continue to rise, long-term bond investors tend to accept a lower return (yield) with capital preservation becoming a primary focus. The yield curve flattens as a result. The chart below captures the difference between 2 and 10 year US government bond yields. The chart shows the yield curve flattening sharply in anticipation of periods of market weakness. When central banks begin cutting short term rates in reaction to market slowdowns, the yield curve steepens sharply and recessions follow shortly thereafter.

 
$YC2YR.jpg
 

At Secure Investments, I advise individual clients on their pension and non-pension fund investment portfolios. To learn more about my Active Asset Allocator and Gold Trader  investment strategies, please get in touch at brian@secureinvestments.ie or 086 821 5911. If you are reading this via LinkedIn, why not visit Secure Investments and subscribe to get exclusive content for free. No spam, ever. Just great stuff.

Disclaimer

The information contained herein should not be taken as an offer of investment advice or encourage the purchase or sale of of any particular security or investment. It is provided for information purposes only. Secure Investments and its content providers makes no representation or warranty of any kind with respect to the services described, analysis or information obtained arising from use of the pages on this website. Information provided is obtained from sources deemed to be reliable and is provided solely on a best efforts basis. Secure Investments and its content providers do not guarantee the completeness or accuracy of such information and do not accept any liability for any loss or damage arising out of negligence or otherwise as a result of use or reliance on this information, whether authorised or not. The use of the website is at the user's sole risk. Not all recommendations are necessarily suitable for all investors and investment policy must be tailored to suit the circumstances of the individual. We recommend that readers consult their professional adviser before acting on any advice or recommendation on this website. The value of any investment may fall as well as rise and you may not recover the full amount originally invested. Past performance or simulated performance is no guarantee of future investment returns. The value of your investment may be subject to exchange rate fluctuations which may have a positive or adverse effect on the price or income or the securities.