Five charts to start your day

Now take a look a this. I created this yesterday. This is 15 years of yield curve history. If you don’t know what the yield curve is, Google it!

Why is this important? The yield curve is the mood ring for the economy and market sentiment. It reveals the prevailing feelings at the time in the world we are in. And as you can see, we have been through a lot in the last 15 years from the twists and shifts of this curve.

Data is beautiful! But history also provides context. We are entering a new chapter in fixed income history and borrowing costs are surging around the world.

Here’s a quick dive on those events:

1️⃣ Pre-Crisis: An upward sloping curve with long-term expectations of economic growth.

2️⃣ 2008-09: The financial crisis sees the curve invert, signalling recession.

3️⃣ 2013: The economic recovery. The curve starts to steepen again, albeit very moderately.

4️⃣ 2015: The Fed starts raising rates from rock bottom levels.

5️⃣ 2018 and 2020: Concerns over recession and Covid-19 see a flatter curve with a brief inversion.

6️⃣ 2022: To tackle inflation, aggressive rate hikes by the Fed cause a significant inversion.

7️⃣ 2023: A bear steepen arises from doubts on the Fed’s ability to raise rates without harming the economy.

And here is the data visualisation:

1. Here's how the yield curve has changed since the Great Financial Crisis

What is interesting is the flatness of the curve. This is a bear steepening event. The long end is rising upwards and flattening out the curve. Basically, markets are pricing in that interest rates will stay higher for long and so will inflation.

The clue is in watching where the real yields are going at the long end – upwards! Real yields give you an indication of the level of inflation being priced-in, in the future.

If you want to see this, take a look at this second chart (paid subscribers only), which shows what’s happening.