How To Predict A Recession: Yield Curve Analysis & The Bond Market
769 بار بازدید -
5 سال پیش
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New Jersey forensic accountant, Robert
New Jersey forensic accountant, Robert A. Bonavito, explains how to predict future economic conditions using the yield curve analysis as well as provides real-world examples and tools to analyze, track, and compare bond rates.
What is the Yield Curve Analysis?
The yield curve analysis technique uses the bond market to help predict and understand time investments and the economy overall. Why the bond market? Bond prices fluctuate based on demand and how people are feeling, this can serve as a powerful indicator of market sentiment.
How Demand Affects Price - An Inverse Relationship
When people want to buy a bond, it's just like houses or cars: the more people want it, the higher prices will go. However, when the price of the bond goes up, more people are paying more for the bond which causes the interest rate goes down. When this happens on a large scale, the decrease in the interest rate can serve as an indication that something is happening in the economy. The terminology for this phenomenon is called “wisdom of the crowds”.
In terms of 10-year bonds and 2-year bonds, you should never have a 10-year bond with an interest rate that's lower than a 2-year (due to the risk involved in holding money for 10 years). This situation is called inversion and is one of the signals that something is wrong. Typically, people will want to invest in long-term bonds before recessions in order to lock in an interest rate for the longest period of time. However, if large numbers of people are willing to still invest in a long-term bond with a lower yield than a short term bond, the wisdom of the crowds are saying, “Hey, wake up. Something is going on.”
Whether you are looking to purchase a new home, car, or preparing a business valuation, it's important to be able to understand this technique. Yield curve analysis is one of the best and most accurate methodologies for making economic predictions. If you have questions about how to use yield curve analysis for forensic evaluations or business valuations, contact Robert Bonavito at (908) 322-7719 or visit him online at https://www.rabcpafirm.com/?utm_sourc...
Robert A. Bonavito, CPA A Professional Corporation
1812 Front Street
Scotch Plains, NJ 07076
https://www.rabcpafirm.com
What is the Yield Curve Analysis?
The yield curve analysis technique uses the bond market to help predict and understand time investments and the economy overall. Why the bond market? Bond prices fluctuate based on demand and how people are feeling, this can serve as a powerful indicator of market sentiment.
How Demand Affects Price - An Inverse Relationship
When people want to buy a bond, it's just like houses or cars: the more people want it, the higher prices will go. However, when the price of the bond goes up, more people are paying more for the bond which causes the interest rate goes down. When this happens on a large scale, the decrease in the interest rate can serve as an indication that something is happening in the economy. The terminology for this phenomenon is called “wisdom of the crowds”.
In terms of 10-year bonds and 2-year bonds, you should never have a 10-year bond with an interest rate that's lower than a 2-year (due to the risk involved in holding money for 10 years). This situation is called inversion and is one of the signals that something is wrong. Typically, people will want to invest in long-term bonds before recessions in order to lock in an interest rate for the longest period of time. However, if large numbers of people are willing to still invest in a long-term bond with a lower yield than a short term bond, the wisdom of the crowds are saying, “Hey, wake up. Something is going on.”
Whether you are looking to purchase a new home, car, or preparing a business valuation, it's important to be able to understand this technique. Yield curve analysis is one of the best and most accurate methodologies for making economic predictions. If you have questions about how to use yield curve analysis for forensic evaluations or business valuations, contact Robert Bonavito at (908) 322-7719 or visit him online at https://www.rabcpafirm.com/?utm_sourc...
Robert A. Bonavito, CPA A Professional Corporation
1812 Front Street
Scotch Plains, NJ 07076
https://www.rabcpafirm.com
5 سال پیش
در تاریخ 1398/02/24 منتشر شده
است.
769
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