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June 1, 2021
7:32 am
AltaRed
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CCPA is Canadian Centre for Policy Alternatives. It is an NDP/socialist style entity. They call themselves non-partisan but they are ideologically based on the left as much as the Fraser Institute is on the right. They spin and distort everything. CCPA seems to be especially bad for unabashed disinformation.

June 1, 2021
8:39 am
Vatox
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I would still like to hear from savemoresaveoften about how the government will ensure the yield curve is inverted when the time comes. I must have the wrong idea about how yield curves form.

June 1, 2021
10:23 am
Bill
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I see, AltaRed, I'm know the type. The truth these days seems to depend on the plucky few who don't just regurgitate the cliched narratives on all sides (I'm sort of part of the problem, I'd rather spend my remaining time outdoors cycling, kayaking, etc vs critically consuming information) so, again, what you illuminate here is very important work, imo - thank you!

June 1, 2021
7:10 pm
savemoresaveoften
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Vatox said
I would still like to hear from savemoresaveoften about how the government will ensure the yield curve is inverted when the time comes. I must have the wrong idea about how yield curves form.  

what is your idea about yield curves form ? maybe we can start from there.

June 1, 2021
7:21 pm
Vatox
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It depends if you are talking about GIC yield curves or bond yield curves. Which were you referring to?

June 1, 2021
7:35 pm
HermanH
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Vatox said
It depends if you are talking about GIC yield curves or bond yield curves. Which were you referring to?  

I'd be happy to hear discussion about both yield curves. sf-cool

June 1, 2021
11:47 pm
Vatox
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Okay, I’ll start with saying bond yield curves represent the sentiments of investors in varying economic situations and outlooks. I see no reason why a government would attempt to influence a yield curve and I see no gain or advantage of doing that if they could. This is why I’m interested in savemoresaveoften’s statement that the government will ensure the yield curve is inverted. There must be something I’m missing here. Please explain.

June 2, 2021
6:07 am
savemoresaveoften
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Vatox said
Okay, I’ll start with saying bond yield curves represent the sentiments of investors in varying economic situations and outlooks. I see no reason why a government would attempt to influence a yield curve and I see no gain or advantage of doing that if they could. This is why I’m interested in savemoresaveoften’s statement that the government will ensure the yield curve is inverted. There must be something I’m missing here. Please explain.  

A typical yield curve that Bay street looks at is 0-30yr. The shape of the curve is important as govt and corporate's majority of borrowing is 5y-30y. Raising O/N rate will have the most impact in the 0-5y, which is where the borrowing at the consumer level is done (mortgages etc). Govt esp after covid has the incentive and economic benefits to keep the 5y and out rates low, as thats where the borrowing is done at the govt and corp level. Govt can influence those rates by bond buying, or simply issue more 5-7y instead of 10y or 30y if they want to keep the long rate low. If you go back before 2009, 30y rates are lower than 10y simply because govt chose to not issuing 30y bonds, thus 30y rates stay low due to demand vs supply. I cant remember if both CAD and US govt did the same. I was a Bay Street professional so I was close to it than the average Joe.

June 2, 2021
8:01 am
Bud
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I trust credit unions more with my savings than the big 6 banks.

June 2, 2021
8:22 am
AltaRed
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Bud said
I trust credit unions more with my savings than the big 6 banks.  

What does that have to do with Inflation? Yield curves? That would be better discussed in an appropriate thread dedicated to that argument.

June 2, 2021
9:34 am
Vatox
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I guess I can see that if the government issues fewer long term bonds, wouldn’t that decrease supply, increase price and lower the yield and invert the curve? But I’m also thinking that government needs money when they need it and for the time frame they need it, so if they need money for longer terms but issue fewer to invert the curve, how does that serve their needs, which is to borrow the money for adequate lengths of time?

My understanding is that the coupon rate curve and yield curves are two different things and the yield curve represents bond traders and investors while the coupon curve is what government pays. I can perhaps see that an inverted yield curve may influence the future coupon rates of long term bonds, but I’m still thinking that government needs the money and has no real control to lower supply. Or if they actually do reduce supply then I’m thinking that’s horribly bad for inflation because the BoC would then print money instead of the higher supply of bonds and that seems horrible bad for inflation, is that correct? In other words, if the government wants to force an inverted curve, the only way to get enough money is to print and that sets off inflation, so what I see is that maintaining a manipulated inverted curve is going to destroy the economy and Canadians with high inflation. I don’t see that as a plausible agenda and I still don’t see the government ensuring an inverted curve. It’s investor sentiments and the demand side that controls the yield curve. Am I interpreting correctly here?

June 2, 2021
10:27 am
Bud
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AltaRed said

What does that have to do with Inflation? Yield curves? That would be better discussed in an appropriate thread dedicated to that argument.  

Ok

June 2, 2021
2:00 pm
savemoresaveoften
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Vatox said
I guess I can see that if the government issues fewer long term bonds, wouldn’t that decrease supply, increase price and lower the yield and invert the curve? But I’m also thinking that government needs money when they need it and for the time frame they need it, so if they need money for longer terms but issue fewer to invert the curve, how does that serve their needs, which is to borrow the money for adequate lengths of time?

My understanding is that the coupon rate curve and yield curves are two different things and the yield curve represents bond traders and investors while the coupon curve is what government pays. I can perhaps see that an inverted yield curve may influence the future coupon rates of long term bonds, but I’m still thinking that government needs the money and has no real control to lower supply. Or if they actually do reduce supply then I’m thinking that’s horribly bad for inflation because the BoC would then print money instead of the higher supply of bonds and that seems horrible bad for inflation, is that correct? In other words, if the government wants to force an inverted curve, the only way to get enough money is to print and that sets off inflation, so what I see is that maintaining a manipulated inverted curve is going to destroy the economy and Canadians with high inflation. I don’t see that as a plausible agenda and I still don’t see the government ensuring an inverted curve. It’s investor sentiments and the demand side that controls the yield curve. Am I interpreting correctly here?  

If you look at US, they have trillions of debt and need to borrow regularly if not daily. What the US treasury did is keep issuing the terms they want/need, and the Fed buys it up and thus keep supply "low" for others. This gets the money in, keeps the treasury rate down, but yes like you said, it is like creating/printing money out of thin air. Its doable cuz US treasury is still the safe haven no matter how bad the US national debt is. Good to be a super power.
Canada can do similar, we have the world class resource that global investors prefer, and if you google Maple bonds, they are in good demand.

Thats how modern fiscal budget is run when everyone runs a deficit, esp thanks to covid.

I guess I will rephrase "the govt prefers an inverted curve" for the reasons already given in previous posts. If the market action does not naturally invert the curve (which is rare), I believe the govt will not hesitate to "make it happen" if needed.

June 2, 2021
3:59 pm
pooreva
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I always wonder... where from all these countries borrow money???

June 2, 2021
5:12 pm
Bud
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pooreva said
I always wonder... where from all these countries borrow money???  

They don't borrow as much anymore they print money instead by selling the debt back to the state bank. The market for government bonds these days is a smaller portion of what they print. The state bank will then cancel some of the debt so they never have to pay it back.

June 2, 2021
8:29 pm
Vatox
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I think it’s going to be an inflation and currency devaluation problem.

June 2, 2021
9:18 pm
Bill
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pooreva, I've wondered that too, and I figure there's a fair bit from North American and European public and private sector workers' pension funds, plus government pension funds such as for cpp, social security in USA, they need a fixed income portion of their holdings so I assume they buy government debt. Same with 1st world workers that have their own retirement (e.g. rrsp, 401(k) in USA) and other investment portfolios, lots of folks aside from those in aggressive portfolio have a portion of their investments such as mutual funds in some fixed income including gov't bonds. So I guess I'm saying it's us 1st world folks, to some degree. It's just a guess, maybe someone else knows some stats to prove me right or wrong.

June 3, 2021
12:19 am
Kidd
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The slippers i bought from Amazon are REALLY starting to smell. I try to blame the dog but i know, it's the slippers.

"Oh gawd... what the hell is that smell?"
"It's the damn dog, what are you feeding him?"

The thread has driven me crazy.

June 3, 2021
5:11 am
Alexandre
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Global inflation hasn't been this high since 2008

Rising prices are bad news for anyone on a fixed income, and central bankers may be tempted to combat inflation by hiking interest rates or paring back stimulus programs.

But, why? If prices are rising, just print more money and give it to people to offset rising prices. (That was sarcasm).

June 3, 2021
8:11 am
Norman1
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Alexandre said
Global inflation hasn't been this high since 2008

Rising prices are bad news for anyone on a fixed income, and central bankers may be tempted to combat inflation by hiking interest rates or paring back stimulus programs.

The April-to-April spike in the inflation rate is sensationalized fake news.

That increase in the inflation rate won't last. At the end of the CNN article, it admits that:

The OECD expects the jump in inflation will fade by the end of the year as supply chains disrupted by the pandemic get back up to speed and production capacity returns to normal. With many people still out of work, the group's economists don't expect a cycle of wage hikes and price increases to materialize — despite evidence of a shortage of workers in some industries.

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