{"id":767,"date":"2024-07-05T15:12:54","date_gmt":"2024-07-05T15:12:54","guid":{"rendered":"https:\/\/www.crowlair.com\/?p=767"},"modified":"2024-07-08T13:25:25","modified_gmt":"2024-07-08T13:25:25","slug":"cfa-level-3-yield-curve-moves-part-2-shifts-additional-points-invertedcurve","status":"publish","type":"post","link":"https:\/\/www.crowlair.com\/?p=767","title":{"rendered":"CFA Level 3: Yield Curve Moves, Part 2 \u2013 Shifts Additional Points \u2013 Inverted Curve"},"content":{"rendered":"\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"767\" class=\"elementor elementor-767\">\n\t\t\t\t<div class=\"elementor-element elementor-element-03230b6 e-flex e-con-boxed e-con e-parent\" data-id=\"03230b6\" data-element_type=\"container\">\n\t\t\t\t\t<div class=\"e-con-inner\">\n\t\t\t\t<div class=\"elementor-element elementor-element-fee9069 elementor-widget elementor-widget-text-editor\" data-id=\"fee9069\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p style=\"text-align: center;\">Read this, and you will never struggle with yield curve movement questions again!<\/p><hr \/><p><em>This is the second article about this topic. Check the other two:<\/em><\/p><ul><li><em><a href=\"https:\/\/www.crowlair.com\/?p=744\">CFA Level 3: Yield Curve Moves, Part 1 \u2013 Level and Slope \u2013 Shifts<\/a><\/em><\/li><li><a href=\"https:\/\/www.crowlair.com\/?p=804\"><em>CFA Level 3: Yield Curve Moves, Part 3 \u2013 Twists, Barbell vs Bullet, Rolling Down the Yield Curve<\/em><\/a><\/li><\/ul><hr \/><p>We previously discussed changes in level and slope. I mentioned that we should pay attention to the math as it\u2019s decisive, not the visuals. Visuals might fool you in an inverted curve environment. This is important!<\/p><p>Let\u2019s measure and calculate steepening or flattening. It is measured by the difference between long-term rates and short-term rates. Let\u2019s take the 30-year and 1-year rates to measure the change in slope for each case described in the previous article. It should be straightforward and just a recall.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-4da067d elementor-widget elementor-widget-image\" data-id=\"4da067d\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-flat-or-step-1024x576.png\" class=\"attachment-large size-large wp-image-773\" alt=\"\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-9ab9e78 elementor-widget elementor-widget-text-editor\" data-id=\"9ab9e78\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p>Now, let\u2019s see how it goes when the yield curve is <strong>inverted<\/strong>. Our original curve is inverted, with the 1-year rate at 6.5% and the 30-year rate at 4%.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-796ea45 elementor-widget elementor-widget-image\" data-id=\"796ea45\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"1024\" height=\"454\" src=\"https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curves-1024x454.png\" class=\"attachment-large size-large wp-image-790\" alt=\"\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-f547708 elementor-widget elementor-widget-text-editor\" data-id=\"f547708\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p>Take a look at the steepening curve (blue). The 30-year rate increased by 0.8% and the 1-year rate decreased by 0.8% (changed by -0.8%). The change in slope is: 0.8% &#8211; (-0.8%) = +1.6%. <strong>The change in difference is positive, so it\u2019s clearly steepening!<\/strong> However, if you look at the chart, <strong>the steepening curve appears flatter<\/strong>, right? That\u2019s why <strong>you should always define the change in slope by the mathematical difference<\/strong> between the long-term rate and the short-term rate, not by looking at the chart!<\/p><p>Let\u2019s check the flattening curve (violet) for the record. The 30-year rate decreased and the 1-year rate increased. The change in slope is -1.6%. Despite the chart showing the flattening curve as steeper, it\u2019s actually flattening.<\/p><p>This is important as we are currently in an inverted yield curve environment.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-d47c661 elementor-widget elementor-widget-image\" data-id=\"d47c661\" data-element_type=\"widget\" data-widget_type=\"image.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<img decoding=\"async\" width=\"768\" height=\"490\" src=\"https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-MMs-market-update-768x490.png\" class=\"attachment-medium_large size-medium_large wp-image-794\" alt=\"\" \/>\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<div class=\"elementor-element elementor-element-b4929ea elementor-widget elementor-widget-text-editor\" data-id=\"b4929ea\" data-element_type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<p>Take a look at <span style=\"text-decoration: underline;\"><a href=\"https:\/\/www.youtube.com\/watch?v=NskLMWaHgQc\">Mark Meldrum\u2019s market update from June 30th, 2024<\/a><\/span>. (Data are as of this date.)<\/p><ul><li>The <strong>2y10y<\/strong> yield curve has been inverted by 0.35% for 725 days already! (The 2-year rate is 4.71%, and the 10-year rate is 4.36%.)<\/li><li>The <strong>3m10y<\/strong> yield curve is inverted by as much as 1.12% for 608 days.<\/li><\/ul><p>Why is this happening? Short-term rates are closely aligned with the Fed Funds Rate, which is 5.25%-5.5%. However, long-term rates depend on inflation and growth expectations. These inversions generally occur when investors expect an economic slowdown or lower future interest rates, prompting higher demand for long-term securities and pushing their yields down relative to short-term rates.<\/p><p>Also, in this weekly update, long-term rates have increased more than short-term ones. What is the name of this move? (Try to answer yourself. If you don\u2019t know, check the bottom left of the first screen in this article.)<\/p><p style=\"text-align: left;\"><em>&lt;&lt;<\/em>&lt; Go back to part 1:<em><span style=\"text-decoration: underline;\"><a href=\"https:\/\/www.crowlair.com\/?p=744\">CFA Level 3: Yield Curve Moves, Part 1 \u2013 Level and Slope \u2013 Shifts<\/a><\/span><\/em><\/p><p style=\"text-align: right;\">&gt;&gt;&gt; Go to part 3:<em> <span style=\"text-decoration: underline;\"><a href=\"https:\/\/www.crowlair.com\/?p=804\">CFA Level 3: Yield Curve Moves, Part 3 \u2013 Twists, Barbell vs Bullet, Rolling Down the Yield Curve<\/a><\/span><\/em><\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>Read this, and you will never struggle with yield curve movement questions again! This is the second article about this topic. Check the other two: CFA Level 3: Yield Curve Moves, Part 1 \u2013 Level and Slope \u2013 Shifts CFA Level 3: Yield Curve Moves, Part 3 \u2013 Twists, Barbell vs Bullet, Rolling Down the [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":768,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ocean_post_layout":"","ocean_both_sidebars_style":"","ocean_both_sidebars_content_width":0,"ocean_both_sidebars_sidebars_width":0,"ocean_sidebar":"","ocean_second_sidebar":"","ocean_disable_margins":"enable","ocean_add_body_class":"","ocean_shortcode_before_top_bar":"","ocean_shortcode_after_top_bar":"","ocean_shortcode_before_header":"","ocean_shortcode_after_header":"","ocean_has_shortcode":"","ocean_shortcode_after_title":"","ocean_shortcode_before_footer_widgets":"","ocean_shortcode_after_footer_widgets":"","ocean_shortcode_before_footer_bottom":"","ocean_shortcode_after_footer_bottom":"","ocean_display_top_bar":"default","ocean_display_header":"default","ocean_header_style":"","ocean_center_header_left_menu":"","ocean_custom_header_template":"","ocean_custom_logo":0,"ocean_custom_retina_logo":0,"ocean_custom_logo_max_width":0,"ocean_custom_logo_tablet_max_width":0,"ocean_custom_logo_mobile_max_width":0,"ocean_custom_logo_max_height":0,"ocean_custom_logo_tablet_max_height":0,"ocean_custom_logo_mobile_max_height":0,"ocean_header_custom_menu":"","ocean_menu_typo_font_family":"","ocean_menu_typo_font_subset":"","ocean_menu_typo_font_size":0,"ocean_menu_typo_font_size_tablet":0,"ocean_menu_typo_font_size_mobile":0,"ocean_menu_typo_font_size_unit":"px","ocean_menu_typo_font_weight":"","ocean_menu_typo_font_weight_tablet":"","ocean_menu_typo_font_weight_mobile":"","ocean_menu_typo_transform":"","ocean_menu_typo_transform_tablet":"","ocean_menu_typo_transform_mobile":"","ocean_menu_typo_line_height":0,"ocean_menu_typo_line_height_tablet":0,"ocean_menu_typo_line_height_mobile":0,"ocean_menu_typo_line_height_unit":"","ocean_menu_typo_spacing":0,"ocean_menu_typo_spacing_tablet":0,"ocean_menu_typo_spacing_mobile":0,"ocean_menu_typo_spacing_unit":"","ocean_menu_link_color":"","ocean_menu_link_color_hover":"","ocean_menu_link_color_active":"","ocean_menu_link_background":"","ocean_menu_link_hover_background":"","ocean_menu_link_active_background":"","ocean_menu_social_links_bg":"","ocean_menu_social_hover_links_bg":"","ocean_menu_social_links_color":"","ocean_menu_social_hover_links_color":"","ocean_disable_title":"default","ocean_disable_heading":"default","ocean_post_title":"","ocean_post_subheading":"","ocean_post_title_style":"","ocean_post_title_background_color":"","ocean_post_title_background":0,"ocean_post_title_bg_image_position":"","ocean_post_title_bg_image_attachment":"","ocean_post_title_bg_image_repeat":"","ocean_post_title_bg_image_size":"","ocean_post_title_height":0,"ocean_post_title_bg_overlay":0.5,"ocean_post_title_bg_overlay_color":"","ocean_disable_breadcrumbs":"default","ocean_breadcrumbs_color":"","ocean_breadcrumbs_separator_color":"","ocean_breadcrumbs_links_color":"","ocean_breadcrumbs_links_hover_color":"","ocean_display_footer_widgets":"default","ocean_display_footer_bottom":"default","ocean_custom_footer_template":"","ocean_post_oembed":"","ocean_post_self_hosted_media":"","ocean_post_video_embed":"","ocean_link_format":"","ocean_link_format_target":"self","ocean_quote_format":"","ocean_quote_format_link":"post","ocean_gallery_link_images":"on","ocean_gallery_id":[],"footnotes":""},"categories":[1],"tags":[],"class_list":["post-767","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","entry","has-media"],"rttpg_featured_image_url":{"full":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve.png",1578,695,false],"landscape":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve.png",1578,695,false],"portraits":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve.png",1578,695,false],"thumbnail":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-150x150.png",150,150,true],"medium":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-300x132.png",300,132,true],"large":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-1024x451.png",1024,451,true],"1536x1536":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-1536x677.png",1536,677,true],"2048x2048":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve.png",1578,695,false],"ocean-thumb-m":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-600x600.png",600,600,true],"ocean-thumb-ml":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-800x450.png",800,450,true],"ocean-thumb-l":["https:\/\/www.crowlair.com\/wp-content\/uploads\/2024\/07\/2-inverted-curve-1200x695.png",1200,695,true]},"rttpg_author":{"display_name":"Crow","author_link":"https:\/\/www.crowlair.com\/?author=1"},"rttpg_comment":3,"rttpg_category":"<a href=\"https:\/\/www.crowlair.com\/?cat=1\" rel=\"category\">Uncategorized<\/a>","rttpg_excerpt":"Read this, and you will never struggle with yield curve movement questions again! This is the second article about this topic. Check the other two: CFA Level 3: Yield Curve Moves, Part 1 \u2013 Level and Slope \u2013 Shifts CFA Level 3: Yield Curve Moves, Part 3 \u2013 Twists, Barbell vs Bullet, Rolling Down the&hellip;","_links":{"self":[{"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/posts\/767","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=767"}],"version-history":[{"count":34,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/posts\/767\/revisions"}],"predecessor-version":[{"id":847,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/posts\/767\/revisions\/847"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=\/wp\/v2\/media\/768"}],"wp:attachment":[{"href":"https:\/\/www.crowlair.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=767"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=767"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.crowlair.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=767"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}