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Yield Inversion, Here Today. Gone Tomorrow?

Apr. 04, 2022 1:34 PM ETAGG, BND, BOND, TLT, TBT, VGLT, VGSH4 Comments


  • The U.S. Treasury yield curve inverted on April Fool's day, triggering a rush of projections based on only 4 prior inversions.
  • Instead, we use the full daily history of the movements in Treasury yield curves since 1962 to project how long inverted yields may persist.
  • Today's best estimate is that inverted yields still have an 80.1% probability of occurrence in the quarter ending September 2022.
  • Looking for a portfolio of ideas like this one? Members of Corporate Bond Investor get exclusive access to our model portfolio. Learn More »

Colorful Arrow And 2022 Sitting Over the Background.

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Kamakura Weekly Forecast, April 1, 2022: Inverted Yields, Negative Rates, and U.S. Treasury Probabilities 10 Years Forward

Yield inversion is here now, with the U.S. Treasury Department reporting a 2-year yield of 2.44% and 10-year yield of

For a daily ranking of the best risk-adjusted value of corporate bonds traded in the U.S. market, please check out a free trial of The Corporate Bond Investor.  Subscribers are actively arbitraging 161-year-old legacy credit ratings using modern big data default probabilities from Kamakura Corporation.  Remember, the Pony Express and credit ratings were both invented in 1860.  Are you still using the Pony Express?

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1. Calculate a forward looking assessment of the investor's cash needs

2. Rank bonds from best to worst by the reward-to-risk ratio

This article was written by

Donald van Deventer profile picture

Dr. Donald R. van Deventer has been in the risk management business since completing his Ph.D. in Business Economics at Harvard University in 1977. He founded the Kamakura Corporation in 1990 after 13 years with two of the 10 largest banks in the US and a stint as investment banker in Tokyo. He joined SAS Institute Inc. as co-head, of the Center for Applied Quantitative Finance in 2022 when SAS acquired Kamakura Corporation. At the time Kamakura was acquired by SAS, Kamakura's institutional clients had total assets or assets under management of 48 trillion dollars.

He leads the investing group Corporate Bond Investor to bring Kamakura's state-of-the-art risk analytics to individual investors. The analytical processes underlying the Corporate Bond Investor are identical to those provided to institutional investors by SAS Institute Inc. He also provides a daily ranking of corporate bonds by best risk-adjusted return. His investing group is currently the only one on Seeking Alpha to focus exclusively on corporate bonds.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (4)

Lion409 profile picture
Well , should we purchase short term bond's or not ?
Donald van Deventer profile picture
@Lion409 We answered that question in one of the articles linked in the text. Over all of the daily history of the US Treasuries since 1962, buying short term bonds has NEVER been better than buying a fixed rate bond if the horizon is 10 years or longer. The market is very good at forecasting future inflation and is almost always right.
@Donald van Deventer Agreed. Buy long and forget about it. Bond folks shouldn’t be trying to time or trade. Just clip the coupons.
Donald van Deventer profile picture
@davemunoz When I first went to Wall Street, the corporate bond traders at my firm were told never to hold "inventory" overnight. That's an implicit confirmation of your recommendation!
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