Monday, July 23

More gloom

Regulars here know that I track the cumulative level of yield inversion in the bond rates at 3, 5 and 10 years. I use this inversion index as a rough barometer of market gloom.

Today's reading has inched up another notch to another post-GFC record.


Click on the bonds label below to see previous reports on this indicator.

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5 comments:

  1. Barking Cat23 July 2012 at 12:55

    Hi there.

    Can you show precisely how the index is calculated? For example, the Aust Govt bond yields at 20 July for 2, 3, 5 & 10 years are, respectively: 2.41, 2.29, 2.40 & 2.83.

    Thanks in advance.

    ReplyDelete
  2. Mark Graph23 July 2012 at 13:52

    The R code for this graph follows ...

    ### --- look for inverted long-term yield curves --- f02
    ic1 <- ifelse( f02$FCMYGBAG2D-f02$FCMYGBAG3D>0, f02$FCMYGBAG2D-f02$FCMYGBAG3D, 0)
    ic2 <- ifelse( f02$FCMYGBAG3D-f02$FCMYGBAG5D>0, f02$FCMYGBAG3D-f02$FCMYGBAG5D, 0)
    ic3 <- ifelse( f02$FCMYGBAG5D-f02$FCMYGBAG10D>0, f02$FCMYGBAG5D-f02$FCMYGBAG10D, 0)
    f02$inversion <- ic1 + ic2 + ic3

    frame <- data.frame(headingPost='Medium to Long Term Bond Yields',
    series='inversion',
    yLabel='Percentage Points (3/2y + 5/3y + 10/5y)')
    f <- paste(imageDir,'f02-inversion-',sep='')

    chartSingle(df=f02, graphFrame=frame, saveLocPrefix=f,
    plotText=list(heading='Inversion Index: '),
    geoms='step',
    footnote='Source: RBA Table F2')

    ReplyDelete
  3. Mark Graph23 July 2012 at 14:12

    Not sure how this will come out, but here are the calculations from the f02 dataframe for the current month. Also, should have mentioned that the data comes from the Reserve Bank of Australia - their table F2.

    #----Date-------inversion-FCMYGBAG2D-FCMYGBAG3D-FCMYGBAG5D-FCMYGBAG10D
    4417 2012-07-02 0.035 2.525 2.490 2.645 3.090
    4418 2012-07-03 0.030 2.535 2.505 2.645 3.065
    4419 2012-07-04 0.030 2.595 2.565 2.700 3.110
    4420 2012-07-05 0.035 2.500 2.465 2.595 2.995
    4421 2012-07-06 0.050 2.505 2.455 2.590 3.000
    4422 2012-07-09 0.055 2.385 2.330 2.465 2.905
    4423 2012-07-10 0.055 2.380 2.325 2.460 2.895
    4424 2012-07-11 0.070 2.405 2.335 2.465 2.895
    4425 2012-07-12 0.075 2.275 2.200 2.330 2.785
    4426 2012-07-13 0.080 2.290 2.210 2.340 2.795
    4427 2012-07-16 0.070 2.325 2.255 2.380 2.820
    4428 2012-07-17 0.070 2.345 2.275 2.395 2.835
    4429 2012-07-18 0.070 2.345 2.275 2.395 2.835
    4430 2012-07-19 0.115 2.420 2.305 2.415 2.840
    4431 2012-07-20 0.120 2.410 2.290 2.400 2.830

    ReplyDelete
    Replies
    1. Barking Cat23 July 2012 at 14:38

      OK, got it!

      I was confused by the y-axis label: "(3/2yr + 5/3yr + 10/5yr)"

      I read "3/2" to mean 3yr rate divided by 2yr rate, but in fact the formula is 2 year rate minus 3 year rate.

      Thanks.

      Delete
  4. Mark Graph23 July 2012 at 15:44

    Thanks for the feedback - I will adjust the y-label for next time. And I will probably present as basis points just to make it a little cleaner.

    ReplyDelete

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