Track 05Module 2 of 611 sources
Rates, the yield curve and what bonds are saying
Read the level and shape of the curve, split yields into real rate and inflation expectation, and track what the market expects from the Fed.
Key ideas
- A nominal yield is a real yield plus expected inflation. Stocks cope with rising inflation expectations far better than with rising real yields.
- Why the curve moves matters. Bull steepening, short yields falling fastest, usually means cuts are coming because growth is weakening.
- Bear steepening, long yields rising fastest, means investors want more compensation to hold duration. It pressures every long-dated asset.
- An inverted curve has preceded most US recessions, with long and variable delays. The un-inversion is often the more urgent signal.
Start hereWatch or read these first. They carry the core idea.
Why Bond Yields Are a Key Economic Barometer | WSJ
Video · The Wall Street Journal · 5:17
Why bond yields are the economy's most watched signal.
Tool
CME FedWatch: market-implied Fed path
CME Group
The probability of each Fed decision implied by futures. Check it before every meeting.
Data
FOMC meeting calendars, statements and projections
Federal Reserve
Meeting dates, statements and the dot plot.
Report
Guide to the Markets
J.P. Morgan Asset Management
Seventy charts on markets and the economy, updated quarterly. The best free chartbook.
CoreThe standard references. Work through them once the idea is clear.
Report
Monetary Policy Report
Federal Reserve
The Fed's twice-yearly report to Congress on policy and the outlook.
Data
World Government Bonds: yields and curves by country
World Government Bonds
Yield curves for every country, India included.
Book
The Price of Time
Edward Chancellor
A history of interest rates and what happens when money is too cheap.
Data
Newsletter
Go deeperResearch, primary sources and data for when you want the detail.
Newsletter
Book
Expected Returns
Antti Ilmanen, Clifford Asness
The chapters on bond risk premia and the term structure.
Practice
Each Friday, record the US 2-year, 10-year and 10-year real yield. Classify the week's curve move as bull or bear, steepening or flattening.
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Where this leads
05.3 · Macro and LiquidityThe dollar, carry and the global financial cycleExplain why a strong dollar tightens conditions everywhere, and how carry trades build and unwind.04.1 · Investing and ValuationValuation and what the price already expectsBuild a simple discounted cash flow, then turn it around to read the expectations in today's price.