Brandy Auterson:
It’s now time for 4 Your Money. We’re joined by John Nelson, financial advisor at NelsonCorp Wealth Management. Welcome back, John.
John Nelson:
Thank you for having me, Brandy.
Brandy Auterson:
Most bonds and financial assets that are sensitive to rising interest rates have had a rough year in 2021. What can you share about what’s been going on in the bond market, and the things that you’re watching?
John Nelson:
Yes. Safe bonds, like treasuries have, they’re still showing negative performance numbers for this year, even though a lot of that damage actually came at the end of March, earlier this year. And it’s kind of been a slow tick or recovery for them. A volatile ride, nonetheless, but little bit of a recovery since then. We’ve seen things pick up. I’ve got a graphic here with me that illustrates the ten-year minus the two-year treasury yield curve. This is one of the most widely viewed type yield curves. There are many of them.
John Nelson:
And what this is showing is it’s just illustrating the volatility that we’ve seen, and actually a falling or a flattening yield, all the way to the right there that I have circled, which is not typical. We’ve seen it in the past where the yield curve has inverted, it’s gone below zero, but this is a flattening a little bit quicker than you normally see. Sometimes an inverted yield curve is a precursor to a recession, followed by inflation picking up, spending, which we’ve seen play out very typical to other cycles through 2020 and 2021. But now we’re seeing a little bit of some softening, a flattening of the yield curve, and implications for that maybe a little bit of a warning sign for the economic recovery.
Brandy Auterson:
All right. So tell us what other implications are there for a flattening yield curve?
John Nelson:
Yeah, a couple other areas of focus, mainly the big one would be the financial sector. Think of banking. Banks take in deposits, they then pay short-term interest to those depositors. They in turn reinvest by making long-term loans where they’re paid long-term rates. So they really benefit from a low short-term rates and higher long-term rate environment. The flip side of that would be real estate, or certain sectors of the real estate market, where many of those transactions are done with long-term interest rates. So if we’re seeing a flattening cycle, again, these are very early signs, but if we are seeing a flattening of the yield curve, there are certain sectors or certain parts of the market that investors should be well aware of their investments, going into that type of environment.
Brandy Auterson:
All right, John, thanks for taking the time to talk with us today.
John Nelson:
Thank you for having me, Brandy.
Brandy Auterson:
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