TRUE DOLLAR JOURNAL

All too often, many get sloppy with the words of their language and thus confusion sets in. This seems to be true of those who work in the financial world.




There is a difference between the words yield and rate. A yield is a sum of payment. A rate is a ratio of a measured quantity over time.

When you hear someone talking about the "yield curve," what that one should say is rate curve or yield rate curve.

A curve is a line drawn from data, plotted as rise or fall over run.  A yield rate curve is drawn from bond yield rates of maturities arranged in sequence from short-term maturity to long-term maturity.

So why is the yield rate curve important? 

In the normal state of affairs, investors are less certain about the future than nearer to now. Investors are willing to pay for bonds only at much lower prices than par for bonds with longer maturity.

Said another way, investors buy higher yield rates for longer futures. In short, investors want to pay less for the yield offered since the longer the time, the greater the danger they will lose all they have put at risk.

In an abnormal state of affairs, many believe bad times are soon ahead. Since investors are less certain about the short-term relative to the long-term, investors are willing to pay for bonds much lower prices than par for bonds of short maturity.

Said another way, investors buy higher yield rates for shorter futures. Investors want to pay less for the yield offered since the shorter the time, the greater the danger they will lose all they have put at risk.

So what does the current True Yield Rate Curve look like, the curve plotted after removing the effects of inflation?



What did it look like six months ago?




How about a year ago, what did the true yield rate curve look like a year ago?




How about the curves leading up to Peak GDP of Q4 2007, what do those curves look like?




That is an inverted yield rate curve! As you can see, the rates for short maturities of six months and one year are much higher than those for longer maturities.



Yes, that is an inverted yield curve too.





And this curve above also is an inverted yield curve.

Before Greenspan and Bernanke kicked in the last phase of the biggest inflation in the history of mankind, then peak True GDP hit at the end of Q4 2000. What did the True Yield Rate Curve look like in the months preceding that peak?




There is an inverted yield curve yet again.




And here is one more inverted yield curve.

Some define the "yield curve" as the difference in yields between two-and 30-year U.S. Treasury bonds. Even with that limited segment of the yield rate curve, the 30 less 2 Popular Yield Curve has inverted 112 quarters from 454, which is 24.7% of the time over that almost 38 year span.

The last time the Popular Yield Curve inverted happened on February 1, 2007. The longest streak of inversion for the Popular Yield Curve ran between 2002 through 2006 through the last leg of the Greenspan-Bernanke Inflation.


Be sure to read THE USA ECONOMY ADVANCE LIKELY HAS BEGUN AT LONG LAST, which I published yesterday, if you desire to get in on the bottom on what could be booming USA economy ahead.