Yield Curve Inversion Again
November 13th, 2006 by Ian
Remember all that talk not too long ago about the United States inverted yield curve? We don’t hear it a lot anymore as the NASDAQ hits a six year high today. You also probably didn’t hear much about this, the yield curve is the Eurozone is now inverted. As stated in the Financial Times:
Analysts say the inversion was prompted by a combination of influences. Investors have been selling short-dated bonds, which have become less attractive to hold, with the European Central Bank increasing interest rates since December last year. The market expects the ECB to raise rates to 3.5 per cent next month.
At the same time, investors have been putting more money into longer-dated debt. Mike Amey, portfolio manager at Pimco Europe, said: “The European markets are caught between two conflicting factors. The ECB is keen on raising interest rates and is keeping a relatively hawkish stance, but there are suggestions that global growth is slowing.”
The International Herald Tribune wrote about it as well as says this,
Before this, the yield curve was last inverted in January 1993. Germany, the largest economy in Europe, fell into recession from 1995 to 1996, and then again in 2003 and 2004.
Didn’t we hear this six months ago in the US? Come on! I think this guy has it right, as stated in the FT article:
Marc Ostwald, strategist at Insinger de Beaufort, said: “On the one hand, there is a very hawkish ECB but there also very excessive levels of liquidity along with the colossal mountain of cash which China, Russia and the OPEC nations are sitting on, for which there is no home domestically.”
