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🔢 the hierarchy of bonds

under normal circumstances, riskier bonds should give us higher yields (returns). roughly speaking, from lowest to highest risk / yield, the list goes like this:

• the fed funds rate (the rate at which banks borrow from each other)

• us treasury bonds

• invest grade bonds (“IG”)

• junk bonds (aka “high yield”)

😅 things are different at the moment

• most notably, as of writing, the us 10-year treasury yield stands at 3.543%, 0.64% lower than the 2-year treasury yield

  • it’s been like this since july ‘22 – when short-term debt has higher yield than long-term debt (for the same borrower; the us government in this case), this typically reflects bond investors' expectations for a decline in rates in the longer-term, an indicator of a recession

• also an anomaly (as shown in the image above) – us investment grade bonds (relatively low risk corporate bonds rated bbb or above) are showing yields barely above the current fed effective cash rate

  • this can be another big signal of a recession, and ultimately a sign for rate cuts

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🕰 111 years ago today…

the average rate on new credit cards for q1 ‘23 was 22.15%, up from 18.32% a year ago. the overall average credit card interest rate is at its highest since 1994 (click image)

as always, i’ll be bringing you news and opinions on what’s going on in the world!