Interest Rates Appear to Have Peaked (Maybe)
by JDH on October 28, 2023
On the one-year chart, the Canada 5 Year Government Bond Yield has rolled over:
From the peak on October 3, the 5-year is down 9%, falling from 4.45% to 4.066%.
So does that prove that interest rates have peaked?
Perhaps. I hypothesize that we are in a recession, and in a recession, we borrow less (because lenders don’t want to lend to unemployed or under-employed borrowers who can’t repay) to the demand for money falls, and that means lower yields. The yield is the price you pay for money, and if the demand for money drops, so does yield.
The confounding variable is that other indicators, like TLT, are not confirming the signal. There were big outflows from the TLT (the American long bond ETF) this week, which appears to indicate that investors expect higher yields.
So, I have no idea what is happening.
I will continue to ponder, and if I figure it out, I’ll let you know.
Interest Rates Appear to Have Peaked (Maybe)
by JDH on October 28, 2023
On the one-year chart, the Canada 5 Year Government Bond Yield has rolled over:
From the peak on October 3, the 5-year is down 9%, falling from 4.45% to 4.066%.
So does that prove that interest rates have peaked?
Perhaps. I hypothesize that we are in a recession, and in a recession, we borrow less (because lenders don’t want to lend to unemployed or under-employed borrowers who can’t repay) to the demand for money falls, and that means lower yields. The yield is the price you pay for money, and if the demand for money drops, so does yield.
The confounding variable is that other indicators, like TLT, are not confirming the signal. There were big outflows from the TLT (the American long bond ETF) this week, which appears to indicate that investors expect higher yields.
So, I have no idea what is happening.
I will continue to ponder, and if I figure it out, I’ll let you know.