Data Update 3 for 2024: A Rule Breaking Year for Interest Rates
ฝัง
- เผยแพร่เมื่อ 23 ม.ค. 2024
- After a calamitous year for bond in 2022, investors faced 2023 with trepidation, but as with stocks, bonds delivered a positive surprise. Short term treasury rates rise, perhaps in response to the Fed's bellicosity, but treasury bond rates stayed unchanged. In fact, the behavior of the bond market and the response of the economy in 2023 tested two widely held nostrums in markets - that the Fed sets interest rates and that a downward sloping yield curve is a precursor to a recession - and found both fell short. Government bond rates in other currencies also mirrored US dollar rates, and followed a strong rise in 2022 with little change in 2023. For companies, the biggest change during the year was that default spreads decreased significantly during the course of the year, as investors became less fearful.
Slides: pages.stern.nyu.edu/~adamodar...
Blog Post:
Always clear and on point. Thank you Prof.
Thanks for sharing, always a pleasure to learn from you!
Thank you Sir
Profesor thx a lot.
very insightful presentation as always Professor.
Awesome professor
Professor, I enjoyed this update immensely, especially the discussion of the intrinsic risk free rate hypothesis compared to the actual 10 year Treasury yield. While the Fed can’t control the yield curve in the short run for the longer maturities, I was surprised you didn’t mention the potential impact that the Fed’s quantitative easing had on suppressing the yield curve during the 2010’s decade.
There's zero evidence that QE suppressed yields since the GFC in '08. The mainstream belief is that because CB's printed bank reserves (not money) to buy bonds, this reduced the supply of bonds which in turn drove bond prices higher and hence yields lower. But there is no evidence that those bonds wouldn't have been absorbed by banks and other institutions if CB's hadn't been buying them.
Fed started advising markets about it's future policy before it started the hiking cycle. Fed led the market at the very short end but the 2yr is another story. Market led the Fed.
You should check out the 10Y3M Spread because the academic who identified the Yield Curve's Inversion as a predictor used this spread, and not the 10Y2Y Spread. And the Fed isn't controlling UST yields; the UST market is.
Can large institutional investors and foreign central banks borrow from the Fed REPO facility? If not at the same rate US banks borrow, then at a premium?
Sir inverted yeild curve always predicated recession when 3 month and 10 year bond turns inverted it indicates recession is ahead , to time the recession the yeild curve will become normal then after 2-3 month recession will hit.
Are you using trailing or forward earnings to measure ERP? And are you using the forward implied curve to assume risk free? I know the argument is markets are forward looking but these assumptions of future estimates are also usually a bit lofty it seems. Makes it a bit unreliable for a gage. Obviously there's problems with backwards looking data but in pivotal cyclical swings seems like it would probably be better reliability of the true risk premium when assessing if one is getting paid adequately to take risk.
Professor, the problems with the yiled curve arise when all of them uninvert from negative (10y-2y, 10y-3m, 2y-3m)
yes recessions historically happen after it inverts then un-inverts, an early warning signal when it starts to happen but nothing imminent until the un-inversion.
If you look at the bill to coupon ratio that shows the distribution of treasuries issuance its clear that Yellen is issuing an abnormally small number of 10 years while banks and the fed sit on the sidelines. A lot of different ways to interpret this, but it's quite conceivable if she hadn't intervened in this fashion or if fed hadn't intervened with banking system backstop in response to SVB and regional crisis that we would indeed be in recession. So it feels unfair to disregard the symbol and it would appear a more thoughtful consideration would be that no matter how powerful a signal, it will never be 100% accurate because government officials are themselves unpredictable like any human.
Well Profesor. I remember when we where in Covid you made a variety of calculations of the s e p the market Burned trough those valutations, s e p is way higher than it should be by a lot, what could possibly be hapening? Companys with lots of cash and lots of growth are inmune it seems to interest rates, and orher factors.
The equally-weighted S&P is still flat; the bulk of the growth has accrued from the "Magnificent Seven" equities.
Very interesting professor. I've seen this theory posited before but not presented as convincingly
the real problem with valuation after 2008 is Apple. Because of Apple and their capacity to grow revenues at doble digit for 15 years and grow margin at the same time for 15 years everyone assume it is possibile to replicate that as long as you are a tech company.
If only Wall Street and Jim Cramer watched your classes, they would learn to stop blaming the fed for interest rates. 😂