5/ Now that we have covered the basics of bonds and yields, let's talk about the yield curve and why it matters.
A yield curve is just a line that plots the yields of bonds with the same credit quality but different maturity dates.
6/ The US Treasury yield curve is the most commonly discussed yield curve - the benchmark.
As the name implies, this is a line that plots the yields of US Treasury bonds (bonds issued by the US government) with maturity dates from 1 month to 30 years.
But why is it important?
7/ The shape of (and changes in) the US Treasury yield curve can provide important information about investor sentiment in the economy.
There are four key shapes to be aware of: (1) Normal (2) Steep (3) Inverted (4) Flat
Let's quickly cover each one and what it tells us...
8/ The Normal Yield Curve
A normal yield curve is upward sloping - yields increase with longer maturities.
In normal times, investors demand more compensation for taking a longer-term risk.
There is more risk within 30 years than within 3 months!
9/ The Steep Yield Curve
A steep yield curve is also upward sloping, but yields rise faster and higher as maturities increase.
At the start of an economic expansion, investors may demand more compensation for long-term risk if they believe rates or inflation may rise.
10/ The Inverted Yield Curve
An inverted yield curve is downward sloping - yields decrease with longer maturities.
At the start of an economic slowdown, investors may aggressively buy longer-term bonds to lock in rates before they drop further in a recession.
11/ The Flat Yield Curve
The flat yield curve is...flat.
It is generally viewed as a predecessor to the inverted yield curve and historically has been seen before economic slowdowns.
12/ So now let's come back to the present.
The Treasury yield curve has been steepening dramatically in 2021.
The vaccine rollout is going well and the "return to normal" is near.
Investors are selling longer-term bonds, sending yields skyward.
But why does this matter?
13/ Remember that bond yields are an indicator of the cost of borrowing money.
When the Fed lowers rates (as in 2020 in response to COVID-19), it is stimulative to the economy, because companies and people can borrow at low rates and put that money to productive uses.
14/ Many companies - especially the tech darlings who were already "winners" of the pandemic - benefitted tremendously from exceptionally low rates.
They also benefitted from near-zero risk-free rates, which I talked about in the thread below.
19/ And if you are less Twitter inclined, sign up for my newsletter here, where you can find all of my old threads and receive all of my new threads directly to your inbox. sahilbloom.substack.com
This morning, bond yields are spiking, sending Nasdaq futures tumbling.
Dennis Ritchie is the most influential man you've never heard of.
A thread on the life and legacy of the incredible technology pioneer...
1/ Dennis MacAlistair Ritchie was born to a middle-class family on September 9, 1941, in Bronxville, New York.
His father, Alistair, was a scientist at Bell Labs, the famous American scientific research and development company known for its track record of innovation.
2/ From a young age, it was clear that Dennis Ritchie had an intrinsic aptitude for science and math.
He excelled in his studies.
Upon graduation from Summit High School in 1959, he packed his bags and moved north to attend Harvard University.
The @JeffBezos Regret Minimization Framework is a simple yet powerful mental model for making important decisions and unlocking growth in your career, startup, business, relationships, or life.
A short thread on how it works and how it can change your life...
Jeffrey Preston Bezos is an American entrepreneur and technologist.
He is most well known as the founder and CEO (soon-to-be executive chairman) of Amazon and the founder of Blue Origin.
A legendary figure today, he may have remained anonymous if not for one key decision.
In 1994, at age 30, Jeff Bezos was a star at D.E. Shaw, a successful quant-focused hedge fund.
He was on a lucrative path.
But he had become obsessed with a new thing called "the internet" and its power to change the world.
The Eisenhower Decision Matrix is a powerful tool for prioritizing your time and unlocking growth in your career, startup, business, relationships, or life.
A thread on how it works and how it can change your life...
Dwight D. Eisenhower was an American military officer and politician.
He was a five-star general in the United States Army and the first Supreme Commander of NATO.
After his military career, he was elected as the 34th President of the United States, serving from 1953 to 1961.
In both his military and civilian careers, Eisenhower stood out for his prolific productivity.
His secret?
Eisenhower observed that people often confuse the urgent with the important. He did not.
"What is important is seldom urgent and what is urgent is seldom important."
For more on mental models, check out my meta-thread of five powerful mental models for driving non-linear outcomes in your investing, business, and life.
If you enjoyed this, follow me for more threads on mental models, business, money, finance, and economics. You can find all of my threads in the meta-thread below.