Bond Yield Inversion, Soft-Landing and Reverse Currency Wars

Bond Yield Inversion, Soft-Landing and Reverse Currency Wars

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What exactly is Bond Yield Inversion? - Bonds are simply a tool used by governments (as well as enterprises) to obtain funds from the public. The yield on a bond is the return an investor receives by way of the coupon of the bond or interest that is paid. Government Bond Yields are often a reliable indicator of the free of risk rate of interest in that economy. The yield curve is a graphical depiction of bond yields (profit). For example, the Yield curve might be obtained by taking Indian government bonds of various tenures and plotting them according to the Yields they give. Under normal circumstances, every economy would possess an up sloping Yield curve, implying a typical profit from Bond investment.

Inverted Bond Yield Curve - Higher Yields are obtained by purchasing longer-term bonds. This makes sense. If one part with money for an extended period of time, the return on investment should be larger. An inversion of the Yield curve, on the other hand, implies that investors anticipate weak future growth. Bonds having a 2-year term, for example, pay higher Yields (returns/interest rate) than Bonds with a 10-year lifespan. Inversion of the Bond Yield curve has proven a good predictor of recessions throughout the years.

What is a Soft-Landing? - A soft-landing happens whenever a central bank is effective in slowing the economy without causing a recession — that is, no one is harmed. However, Hard-Landing takes place when the central bank's activities cause a recession.

What exactly are Reverse Currency Wars? - As the US Federal Reserve rate rises, investors find it more appealing and less dangerous. As a result, an increasing number of investors are racing to invest in the United States. As a result, the dollar has grown more valuable than all other currencies. Their exports are more competitive due to the comparatively low value of their native currency against the dollar. This has the potential to benefit economies. Today, however, each central bank is attempting to offset the US Fed by raising interest rates in order to guarantee that their currency is not losing too much value versus the dollar. This is known as a "reverse currency war."