Here is an old post where we took at a look at investing based on the yield curve. I updated the charts here with more and less granularity. From the tables one could infer that stocks and especially REITs love a good ol steep yield curve like we have now. Annualized average monthly returns from 1973-2009 (although it is missing the last two months of 2009). Check out that commodity and gold performance when yield curve is negative.
Really cool little analysis. Is that 3 based on 3m T-bill to 10 year note? I have been knee deep in those articles on yield curve and carry currency returns.
Cheers from Osaka,
john
Hi Meb,
What did you use for your yield curve data? I had a quick look from Pinnacle daily data 1982 on, and -ve yield curve is only about 6.9% of the time. But, I guess that probably just means that 1973-1982 had a much larger number of time periods with -ve yield curves.
Cheers,
Mark
It would be interesting to have a breakdown of equity vs. mortgage REITs. Mortgage REITs are a carry trade, so the correlation of curve to performance makes perfect sense. But how much do operating/equity REITs benefit from the curve?
Yep
GFD
Broadly similar except Mortgage REITs get hammered when yield curve flattens out or is negative.
MF-any interest in updating your equity curves assuming you bought the top asset classes in each “spread” bracket. I wonder if the more granular breakout changes much – or perhaps even changing the rule up a bit since a few of these brackets don't have a clear winner, but do have clear losers. (so rules would be <0, long comm/gold, 0-1 long all, except REIT, 1-2 long all except bonds, reits and gold, 2-3, long all except commodites/gold, >3, long reits, stock, etc)
Mebane,
Great Work.
What about TIPs?
Thanks
SS
Does it change depending on which way the yields are moving? eg if the yield difference fall from 3 to 2 do bonds perform differently compared to when the yield difference rises from 2 to 3?
Good read. Good research. I time the markets at least in part based on the yield curve. I have not broke the data down this way. Thank you!
Good read. Good research. I time the markets at least in part based on the yield curve. I have not broke the data down this way. Thank you!