Last Updated on 16 November 2022 by automiamo.com
When investing for the long term I first look the bond market before leaping in the stocks.
There are few simple and important rules to follow in this market.
- Higher Bond yields = Lower Bond Prices = Bottom in the bond market is more bottom
- Short-mid term bond yields is closing to long-term yields (example 2-Years yield = 10-Years yield) = This means flattening = not good for long-term investment, stay alerting for your paper profits.
- Short-mid term bond yields is greater than long-term yields (example 2-Years yield is greater than 10-Years yield) = This means inversion = NOT GOOD, imminent fear of recession (remember: stock market does not perform well during recessions)
- Short-mid-term bond yields is less than long-term yields (example 2-Years yield is less than 10-Years yield and going lower) = That’s fine, economics sounds good for long-term investments
What I see now United States, Canada, Brazil are countries with the most prolongated inversion areas (highlighted with red circles in the figure above).
5. More prolongated inversion = not good even more
Flattening areas (yellow circles) have to be carefully monitored.
Few examples currently are showing good news (green circles) : Japan long-term and mid-term yield curves are fine and in the good direction. Same as in Australia.