Shaping up
So, the blog has passed the eight year mark, even if the past year fits on the front page. It's not that I don't have something to say, I just choose to do so in another venue (even more dated than blogging), content for the blog to be an eddy in the backwaters of the internets. I wouldn't even be adding this ripple if not for the four-year forecast I made four years ago in my sole foray into econoblogging.
No need to click through on the above except for verification or elaboration (capsule summary, lifted from an update: potential for a rare configuration, a inverted humped yield curve, as occurred in Germany in spring '94, but regardless there's relative value in the belly of the curve; further updating here & here). So. what happened? While the US Treasury curve has remained "normal" (positively sloped, but hardly regular, in that the inflection point is still out beyond 3 years out, but thankfully no longer beyond 5 years out [thanks Bernanke, though I think the tapering talk was aimed more at Congress' fiscal (ir)responsibility]), the TIPS curve was inverted & humped in spring '12 (and Aussie govvies went inverted & humped down under shortly thereafter). For Treasuries, the midmaturities performed well over the period, with rates down 1.1/4% (1.1/8% for 10yr, 7/8% for 30yr), and with rolling down the curve (i.e. getting closer to maturity) the recommended 7yr was best in show, yields down 2.71% (vs 5 yr 2.44%, 10yr 2.03%, 30yr 1.11%). Because of the drop in rates, capital appreciation increased along with maturity, further bolstered by higher coupon income, so net profits were greatest for the 30yr, 37.1/4% over 4 years (10yr 26.1/2%, 7yr 21.1/4%, 5yr 13%). But on a risk-adjusted basis (using duration), the 7yr again had the best relative return. All in all, not too shabby as such prognostications go, and the prospect of an inverted humped Treasury curve in a couple of years remains in play, but I'm not making any predictions, I'm just sayin'.
No need to click through on the above except for verification or elaboration (capsule summary, lifted from an update: potential for a rare configuration, a inverted humped yield curve, as occurred in Germany in spring '94, but regardless there's relative value in the belly of the curve; further updating here & here). So. what happened? While the US Treasury curve has remained "normal" (positively sloped, but hardly regular, in that the inflection point is still out beyond 3 years out, but thankfully no longer beyond 5 years out [thanks Bernanke, though I think the tapering talk was aimed more at Congress' fiscal (ir)responsibility]), the TIPS curve was inverted & humped in spring '12 (and Aussie govvies went inverted & humped down under shortly thereafter). For Treasuries, the midmaturities performed well over the period, with rates down 1.1/4% (1.1/8% for 10yr, 7/8% for 30yr), and with rolling down the curve (i.e. getting closer to maturity) the recommended 7yr was best in show, yields down 2.71% (vs 5 yr 2.44%, 10yr 2.03%, 30yr 1.11%). Because of the drop in rates, capital appreciation increased along with maturity, further bolstered by higher coupon income, so net profits were greatest for the 30yr, 37.1/4% over 4 years (10yr 26.1/2%, 7yr 21.1/4%, 5yr 13%). But on a risk-adjusted basis (using duration), the 7yr again had the best relative return. All in all, not too shabby as such prognostications go, and the prospect of an inverted humped Treasury curve in a couple of years remains in play, but I'm not making any predictions, I'm just sayin'.
posted by nnyhav | 23:38
1 Comments:
Been some time since I looked in.Glad to see you are still posting Dave.I miss the golden age of Meander.Just finished The Dead of Night-The Ghost Stories of Oliver Onions.Good stuff.
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