negative yield curve - yield curve risk??

CFA Level III
#1

under what circumstances do we have negative yield curve??? any real example?? is it a type of yield curve risk??

#2

inverted yield curve

#3

thanks, but how come inverted yield curve is a type of yield curve risk then?

#4

yield curve risk is a risk that yield curve will twist - in other words rates at different maturities will change by different amount

#5

You can have Negative Nominal Interest Rates, but not Negative Real Interest Rates… Unless by Negative YC you mean an Inverted YC…

#6

bigwilly Wrote: ------------------------------------------------------- > You can have Negative Nominal Interest Rates, but > not Negative Real Interest Rates… Unless by > Negative YC you mean an Inverted YC… Yes you can have negative real interest rates, willy what are you smoking man :slight_smile:

#7

I dont think you can… Why would I pay you to hold Your Paper??? You can have a Negative Nominal due to Disinflation, but not Real… Prove me wrong…please in case I am wrong… :0

#8

Now I think I’m wrong…did i reverse it???

#9

Now that I think of it, if Nominal rates are 2% and Inflation is 4%, then the real is -2%… Damnit…

#10

^Did you have your breakfast this morning? :slight_smile:

#11

on my 2nd cup… brain is only firing on 4 of its 8 cylinders.

#12

both nominal and real can be negative. it happened in Japan.

#13

^That is one of my primary concern in US now.

#14

i thought in Japan nominal was zero or slightly above zero in nominal terms… it was negative?

#15

I think their “Fed Funds” equivalent was 0.

#16

Both HKD and JPY have seen negative nominal rates in the past decade. How can real rates go negative? The last study I read indicated that real rates almost never stray from 1.2-1.4% (justfor USD, but I don’t know why this would differ for other developed economies). Expected (not realized) inflation accounts for the rest of the short rate (and you can add inflation risk, aka term premium, for the rest of the curve). So I don’t believe it’s possible to observe bigwilly’s example of 2% nominal and 4% (expected) inflation. When/where did that occur?

#17

Darien…I used those as an example.

#18

Tightening monetary policy (raising short term rates) and tigher fiscal policy (raising taxes) = downwardf sloping yield curve loose monetary + reducing taxes = upward sloping loose monetary + raising taxes = slightly upward sloping tight monetary + reducing taxes = more or less flat Monetary policy typically dominates tax policy.

#19

jimmylegs Wrote: ------------------------------------------------------- > Tightening monetary policy (raising short term > rates) and tigher fiscal policy (raising taxes) = > downwardf sloping yield curve > > loose monetary + reducing taxes = upward sloping > > loose monetary + raising taxes = slightly upward > sloping > > tight monetary + reducing taxes = more or less > flat > > Monetary policy typically dominates tax policy. i remember there was a table, can you please page# and vol?

#20

in going with this theme… it’s good to know the coincident, lagging, and leading indicators… anyone have a nice list handy so we don’t have to look them up?