Predicting the Markets: Chapter 10 Charts: Predicting Bonds

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1 Predicting the kets: Chapter 1 Charts: April, 1 Dr. Edward Yardeni Chief Investment Strategist Mali Quintana Senior Economist info@yardenibook.com Please visit our sites at www. blog. thinking outside the box

2 Table Of Contents Table Of Contents 1-7 April, 1 / Chapter 1 Charts: www.

3 1 1 Figure 1. US TREASURY 1-YEAR BOND YIELD: (percent, daily) 1. 9/3/ /3/ // /1/ /3/ Source: Federal Reserve Board. 1 1 Figure. US CONSUMER PRICE INDEX: (yearly percent change, monthly) 1. 3/ / /7. 7/3. 3/ 1.1 / Source: Bureau of Labor Statistics. Page 1 / April, 1 / Chapter 1 Charts: www.

4 Figure 3. FEDERAL FUNDS RATE: (percent, weekly) Source: Federal Reserve Board. Figure. US BANK PRIME LOAN RATE: (percent, weekly) Source: Federal Reserve Board. Page / April, 1 / Chapter 1 Charts: www.

5 11 Figure. US UNEMPLOYMENT RATE: (percent, monthly) 1. / / /71. 1/73. /79. 3/ / Source: Bureau of Labor Statistics Figure. REAL GDP: (trillion 9 dollars, saar, quarterly, ratio scale) Source: Bureau of Economic Analysis. 3. Page 3 / April, 1 / Chapter 1 Charts: www.

6 1 1 1 Figure 7. US TREASURY BOND YIELD & NOMINAL GDP GROWTH US Treasury 1-Year Bond Yield (percent) Nominal GDP (yearly percent change) Q Source: Bureau of Economic Analysis and Federal Reserve Board. 1 Figure. SPREAD BETWEEN US TREASURY BOND YIELD & NOMINAL GDP GROWTH* (percentage points) 1 - Q * US Treasury 1-year bond yield minus yearly percent change in nominal GDP. Source: Bureau of Economic Analysis and Federal Reserve Board. Page / April, 1 / Chapter 1 Charts: www.

7 3 3 3 Figure 9. WEST TEXAS INTERMEDIATE CRUDE OIL PRICE: 19- (dollars per barrel, monthly, ratio scale) Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Haver Analytics Figure 1. HOUSING STARTS (million units, saar, monthly) Source: Census Bureau..9.7 Page / April, 1 / Chapter 1 Charts: www.

8 11 1 Figure 11. US TREASURY 1-YEAR BOND YIELD: 197- (percent, daily) Source: Federal Reserve Board Figure. DOW JONES INDUSTRIALS AVERAGE: 197- (daily) Source: Dow Jones Inc Page / April, 1 / Chapter 1 Charts: www.

9 Figure 13. THE AGE WAVE, INFLATION, and BOND YIELD IN THE US (percent) US Treasury 1-Year Bond Yield*** Age Wave* 3 Inflation Trend** * Percent of labor force 1-3 years old. ** Five-year moving average of yearly percent change in CPI. *** Five-year moving average of ten-year government bond yield. Source: Bureau of Labor Statistics and Federal Reserve Board. Figure 1. EQUITY & BOND MUTUAL FUNDS (cumulative flows since 199, trillion dollars) 3 Cumulative Net Inflows Equity Mutual Funds Bond Mutual Funds Feb Source: Investment Company Institute. Page 7 / April, 1 / Chapter 1 Charts: www.

10 Figure 1. US TREASURY 1-YEAR BOND & TIPS YIELDS (percent, daily) 1-Year Treasury Bond Yield TIPS Yield /19 / Source: Federal Reserve Board Figure 1. EXPECTED INFLATION IN 1-YEAR TIPS* (percent, daily) / * Nominal minus TIPS yield. Source: Federal Reserve Board. Page / April, 1 / Chapter 1 Charts: www.

11 1 Figure 17. EXPECTED INFLATION: SURVEY OF PROFESSIONAL FORECASTERS 1 1 Professional Forecasters* CPI: Ex Food & Energy (yearly percent change) * Median forecast of year-over-year CPI inflation rate over the next 1 years using Philadelphia Fed Survey of Professional Forecasters data (monthly series interpolated from quarterly data starting as two quarters per year during Q-1979 until Q-1991 when the data continue with four quarters per year). Source: Bureau of Labor Statistics and Federal Reserve Bank of Philadelphia. 3. Figure 1. MEASURES OF EXPECTED INFLATION (percent) / Expected Inflation Professional Forecasters* 1-Year TIPS** * Median forecast of year-over-year CPI inflation rate over the next 1 years using Philadelphia Fed Survey of Professional Forecasters data (monthly series interpolated from quarterly data starting as two quarters per year during Q-1979 until Q-1991 when the data continue with four quarters per year). ** Nominal US Treasury 1-year minus 1-year TIPS yields. Source: Federal Reserve Board and Federal Reserve Bank of Philadelphia. Page 9 / April, 1 / Chapter 1 Charts: www.

12 1 1 1 Figure 19. US CONSUMER PRICE INDEX & US TREASURY 1-YEAR BOND YIELD 1-Year Yield CPI Inflation* * Yearly percent change. Source: Federal Reserve Board and Bureau of Labor Statistics. Figure. US CONSUMER PRICE INDEX & US TREASURY 1-YEAR BOND YIELD (percent) 1 1-Year Yield 1-Year Yield Minus CPI Inflation* * Yearly percent change. Source: Federal Reserve Board and Bureau of Labor Statistics. Page 1 / April, 1 / Chapter 1 Charts: www.

13 1 Figure 1. REAL FEDERAL FUNDS RATE* (percent) * Federal funds rate minus median forecast of year-over-year CPI inflation rate over the next 1 years using Philadelphia Fed Survey of Professional Forecasters data (monthly series interpolated from quarterly data starting as two quarters per year during Q-1979 until Q-1991 when the data continue with four quarters a year). Source: Federal Reserve Board, US Treasury, and Federal Reserve Bank of Philadelphia. 1 Figure. REAL BOND YIELD* * US Treasury 1-year bond yield minus median forecast of year-over-year CPI inflation rate over the next 1 years using Philadelphia Fed Survey of Professional Forecasters data (monthly series interpolated from quarterly data starting as two quarters per year during Q-1979 until Q-1991 when the data continue with four quarters a year). Source: Federal Reserve Board, US Treasury, and Federal Reserve Bank of Philadelphia. Page 11 / April, 1 / Chapter 1 Charts: www.

14 Figure 3. FEDERAL FUNDS RATE and US TREASURY 1-YEAR BOND YIELD (percent, monthly) 1 1-year bond yield Federal Funds Rate Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Federal Reserve Board. Figure. US YIELD CURVE & THE BUSINESS CYCLE* (basis points, monthly) * US Treasury 1-year bond yield minus federal funds rate. Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Federal Reserve Board. Page / April, 1 / Chapter 1 Charts: www.

15 Figure. US CONSUMER PRICE INDEX & MONETARY POLICY CYCLE (yearly percent change) Note: Blue shaded areas denote periods of monetary easing between cyclical peaks and troughs in the federal funds rate. Red shaded areas denote monetary tightening periods. Source: Bureau of Labor Statistics. Figure. US YIELD CURVE* & MONETARY POLICY CYCLE (basis points) / * US Treasury 1-year bond yield less federal funds rate. Monthly through 197, then weekly. Note: Blue shaded areas denote periods of monetary easing between cyclical peaks and troughs in the federal funds rate. Red shaded areas denote monetary tightening periods. Source: Federal Reserve Board. Page 13 / April, 1 / Chapter 1 Charts: www.

16 .. Figure 7. FED S ASSETS: -1* (trillion dollars) QE1 QE QE Total Assets US Treasuries + Agency Debt + MBS * Average of daily figures for weeks ending Wednesday. Note: QE1 (11//) = Fed starts buying $1.tn in mortgage securities. QE1 expanded (3/1/9) = Fed starts buying $3bn in Treasuries. QE (11/3/1) = Fed starts buying $bn in Treasuries. QE3 (9/13/) = Fed starts buying $bn/month in mortgage securities (open ended). QE3 expanded (//) = Fed starts buying $bn/month in Treasuries. Source: Federal Reserve Board. Figure. FED S ASSETS: -1* (trillion dollars) QE1 QE QE US Treasury Securities Agency Debt + MBS MBS * Average of daily figures for weeks ending Wednesday. Note: QE1 (11//) = Fed starts buying $1.tn in mortgage securities. QE1 expanded (3/1/9) = Fed starts buying $3bn in Treasuries. QE (11/3/1) = Fed starts buying $bn in Treasuries. QE3 (9/13/) = Fed starts buying $bn/month in mortgage securities (open ended). QE3 expanded (//) = Fed starts buying $bn/month in Treasuries. Source: Federal Reserve Board. Page 1 / April, 1 / Chapter 1 Charts: www.

17 ... Figure 9. US TREASURY 1-YEAR BOND YIELD (percent) QE1 QE QE Note: QE1 (11//) = Fed starts buying $1.tn in mortgage securities. QE1 expanded (3/1/9) = Fed starts buying $3bn in Treasuries. QE (11/3/1) = Fed starts buying $bn in Treasuries. QE3 (9/13/) = Fed starts buying $bn/month in mortgage securities (open ended). QE3 expanded (//) = Fed starts buying $bn/month in Treasuries. Source: Federal Reserve Board. Figure 3. S&P INDEX QE1 QE QE3 S&P Index US Treasuries + Agency Debt + MBS (trillion dollars) Note: QE1 (11//) = Fed starts buying $1.tn in mortgage securities. QE1 expanded (3/1/9) = Fed starts buying $3bn in Treasuries. QE (11/3/1) = Fed starts buying $bn in Treasuries. QE3 (9/13/) = Fed starts buying $bn/month in mortgage securities (open ended). QE3 expanded (//) = Fed starts buying $bn/month in Treasuries. Source: Standard & Poor s. Page 1 / April, 1 / Chapter 1 Charts: www.

18 1 1 1 Figure 31. EUROZONE: GOVERNMENT 1-YEAR BOND YIELDS (percent) D NIRP QE QEE Bond Yields France Germany Italy Spain Note: D (7//) = ECB President io Draghi pledged to do "whatever it takes" to defend the euro. NIRP (//1) = negative interest-rate policy. QE (1//1) = quantitative easing. QEE (3/1/1) = expansion and extension of QE with corporate bond purchases started /1/1. Source: Financial Times. - Figure 3. GREECE: GOVERNMENT 1-YEAR BOND YIELD (percent, daily) / Source: Financial Times. Page 1 / April, 1 / Chapter 1 Charts: www.

19 Figure 33. EUROZONE: GOVERNMENT 1-YEAR BOND YIELDS (percent, daily) Bond Yields France Germany Italy Spain D NIRP QE QEE Note: D (7//) = ECB President io Draghi pledged to do "whatever it takes" to defend the euro. NIRP (//1) = negative interest-rate policy. QE (1//1) = quantitative easing. QEE (3/1/1) = expansion and extension of QE with corporate bond purchases started /1/1. Source: Financial Times. / Figure 3. ECB DEPOSIT RATE & GERMAN GOVERNMENT 1-YEAR BOND YIELD (percent, daily) 3 Germany: 1 Year Bond Yield ECB Deposit Rate 3 1 / / Source: European Central Bank and Haver Analytics. -1 Page 17 / April, 1 / Chapter 1 Charts: www.

20 Figure 3. ECB: HOLDINGS OF SECURITIES (trillion euros, ratio scale) / Securities of Euro Area Residents in Euro D NIRP QE QEE Note: D (7//) = ECB President io Draghi pledged to do "whatever it takes" to defend the euro. NIRP (//1) = negative interest-rate policy. QE (1//1) = quantitative easing. QEE (3/1/1) = expansion and extension of QE with corporate bond purchases started /1/1. Source: European Central Bank..1 1 Figure 3. JAPAN: INTEREST RATES (percent, weekly) 1 1-Year Government Bond Yield Call Rate: Uncollateralized Overnight / Source: Bank of Japan. - Page 1 / April, 1 / Chapter 1 Charts: www.

21 Figure 37. JAPAN: MONETARY BASE* (trillion yen, sa, ratio scale) A QQE QQEE NIRP Z YC * Adjusted for change in reserve requirements. Note: Z = Zero Interest Rate Policy. A = kets start to anticipate Abenomics. QQE (//13) = Quantitative and Qualitative Easing. QQEE (1/31/1) = QQE expanded and extended version. NIRP (1/9/1) = Negative interest rate policy. YC (9/1/1) = Yield curve targeting. Source: Bank of Japan Figure 3. JAPAN: US$ / 1YEN (daily) A QQE QQEE NIRP YC / day moving average Note: A = kets start to anticipate Abenomics. QQE is Quantitative and Qualitative Easing. QQEE is the expanded and extended version of QQE. NIRP = negative interest rates. YC = Yield curve targeting. Source: Haver Analytics.. Page 19 / April, 1 / Chapter 1 Charts: www.

22 Figure 39. GOVERNMENT 1-YEAR BOND YIELDS (percent, daily) Bond Yields US Japan Germany / Source: Haver Analytics Figure. CORPORATE & US TREASURY 1-YEAR BOND YIELDS (percent, monthly) Corporate Bond Yield: A-BBB Rated* 1-Year Bond Yield * Moody s seasoned Baa corporate bond yield from 19 to 199, then Bank of America Merrill Lynch A-BBB corporate bond yield Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Federal Reserve Board. Page / April, 1 / Chapter 1 Charts: www.

23 Figure 1. YIELD SPREAD CORPORATE* & US TREASURY 1-YEAR BONDS (basis points, monthly) * Moody s seasoned Baa corporate bond yield from 19 to 199, then Bank of America Merrill Lynch A-BBB corporate bond yield. Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Federal Reserve Board. 9 Figure. S&P VIX & HIGH YIELD CORPORATE BOND SPREAD 7 S&P VIX High-Yield Corporate Spread* / * US high-yield corporate bond yield less US Treasury 1-year bond yield (basis points). Source: Chicago Board Options Exchange, Bank of America Merill Lynch, and Federal Reserve Board. Page 1 / April, 1 / Chapter 1 Charts: www.

24 - Figure 3. ECRI WEEKLY LEADING INDEX & HIGH YIELD CORPORATE SPREAD (basis points, inverted scale) /13 / High-Yield Corporate Spread* ECRI Weekly Leading Index (199=1) * High yield corporate less US Treasury 1-year bond yield. Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Merrill Lynch, Federal Reserve Board, and Economic Cycle Research Institute (ECRI) Figure. US FEDERAL GOVERNMENT BUDGET DEFICIT (as a percent of nominal GDP) Q Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Bureau of Economic Analysis. Page / April, 1 / Chapter 1 Charts: www.

25 Figure. US FEDERAL GOVERNMENT EXPENDITURES & RECEIPTS (as a percent of nominal GDP) Q 1 Q Expenditures Receipts Note: Shaded areas denote recessions according to the National Bureau of Economic Research. Source: Bureau of Economic Analysis. Figure. US AGENCY & GSE-BACKED BONDS: NET PURCHASES BY REST OF WORLD (billion dollars, -quarter sum) US Agency & GSE-Backed Securities Q Source: Federal Reserve Board Financial Accounts of the United States. - Page 3 / April, 1 / Chapter 1 Charts: www.

26 1 Figure 7. US TREASURY BONDS: NET PURCHASES BY REST OF WORLD (billion dollars, -quarter sum) 1 US Treasury Securities Q Source: Federal Reserve Board Financial Accounts of the United States Figure. US DEBT (trillion dollars) US Debt Total (nsa) Nonfinancial (sa) Financial (sa) Q Source: Federal Reserve Board Financial Accounts of the United States..1 Page / April, 1 / Chapter 1 Charts: www.

27 3 Figure 9. US DEBT (as a percent of nominal GDP) Debt/GDP Total Nonfinancial Financial Q Source: Federal Reserve Board Financial Accounts of the United States. Figure. US DEBT OF NONFINANCIAL DOMESTIC SECTORS (trillion dollars, nsa) Q 3 Nonfinancial Debt Total* Total Less Treasury Treasury * Includes mortgage, consumer, business, and US Treasury debt. Source: Federal Reserve Board Financial Accounts of the United States. Page / April, 1 / Chapter 1 Charts: www.

28 3 Figure 1. US DEBT OF NONFINANCIAL DOMESTIC SECTORS (as a percent of nominal GDP) 3 Nonfinancial Debt/GDP Total* Total Less Treasury Treasury Q * Includes mortgage, consumer, business, and government debt. Source: Federal Reserve Board Financial Accounts of the United States. 1 Figure. US TOTAL HOUSEHOLD DEBT BALANCE (trillion dollars) Q Source: New York Fed Credit Panel. Page / April, 1 / Chapter 1 Charts: www.

29 1 Figure 3. US HOUSEHOLD DEBT SERVICE RATIO* Q * Ratio of debt service payments to disposable personal income. Source: Federal Reserve Board. Page 7 / April, 1 / Chapter 1 Charts: www.

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