Peterson Wealth Management: Are bond yields trying to tell us something?


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The yield curve may be the pocket watch of economic indicators. It’s been around for a long time and it’s often right, but not always.

The yield curve is the difference between the interest paid on two-year government bonds and 10-year government bonds. In normal circumstances, an investor would expect to earn a higher rate of interest when lending money to a government for 10 years than when lending money for two years because there is more risk associated with lending for a longer period of time.

When the yield curve flattens or inverts, it suggests a shift in investors’ expectations. Financial Times explained:

“The slope made up of bond yields of various maturities has a record of predicting recessions that would make even the savviest econometrician turn pea-green with envy. It is not perfect, but the curve has become flat and inverted – when short-term bond yields are actually higher than long-term ones – ahead of most economic downturns in most major countries since the second world war.”

In the United States last week, the difference between yields on 2-year Treasuries (2.56) and 10-year Treasuries (2.90) flattened. The gap narrowed to 34 basis points (a basis point is one-hundredth of one percent). The change reflects higher short-term rates, courtesy of the Federal Reserve. It also suggests tariffs and trade issues have made bond investors more pessimistic about prospects for U.S. growth, reported The Wall Street Journal.

Globally, the yield curve is inverted. “The average yield of bonds in JPMorgan’s broadest Government Bond Index that mature in seven to 10 years last week slipped below the average yields of bonds maturing in one to three years for the first time since 2007…that indicates that investors have a pretty grim view of where the world economy and equity markets are heading,” reported Financial Times.


YOU KNEW CARROTS WERE GOOD FOR YOUR EYES

Newly discovered use for the orange veggie may help farmers and/or food processing companies find a new source of revenue. That’s because carrots can make concrete stronger – and so do sugar beets.

Engineers at Lancaster University in the United Kingdom are infusing nano platelets from discarded carrots and root vegetable peels into concrete. This strengthens the material in an environmentally friendly way. Durability + Design reported:

“These vegetable-composite concretes were also found to out-perform all commercially available cement additives, such as graphene and carbon nanotubes and at a much lower cost…The root vegetable nano platelets work both to increase the amount of calcium silicate hydrate – the main substance that controls the performance of concrete – and stop any cracks that appear in the concrete.”

The Economist reported adding 500 grams of platelets reduced the amount of cement required to make a cubic foot of concrete by 10 percent. In addition to reducing the amount of building material needed for a project, carrot concrete also reduces CO2 emissions.

If demand for carrots (and sugar beets and wood) increases and supply remains constant then we may see prices for those goods increase.

D. Scott Peterson is CEO and head investment manager for Peterson Wealth Management. If you wish to contact him, call 775-673-1100. This article was provided by Peterson Wealth Management. For more information, please call 775-423-8007 or visit PetersonWM.com.