A quick note: Hey everyone! I hope you’re doing well. For the past couple of weeks, I’ve been doubling down on my TikTok strategy in order to spread my personal finance information to a wider audience.
I would be greatly appreciative if you could follow me on TikTok (@jordantrev) and continue supporting my message. Many thanks.
What Are Bonds?
There’s a reliable way to gauge whether the United States will enter into a recession and it’s all about how we measure interest rates on bonds. Normally, you’d expect to get a higher payout on longer term bonds. Let’s define how bonds work for a second:
A bond is a fixed-income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer. - Investopedia
Bonds are set in stone returns (at a lower rate) as opposed to stocks which could vary wildly in returns. Many 401Ks transition from stocks to bonds to secure all the wealth you’ve accumulated for retirement for instance.
An Indication of an Upcoming Recession
There are different bond term lengths varying from 5 to 30 years and at different interest rates. Normally, you’d expect a 30-year bond to have a higher interest rate since you’re locking your money up for an extended period of time.
However, there are situations where the short term interest rate for bonds are higher than the long term bonds. This is a reliable signal on whether the nation’s economy will enter into a recession as its been used to predict recessions for the past century.
This point indicates that we’re due for an upcoming recession and we hit this point within early April.
What to do Next
Follow me on TikTok? Had to plugin as a reminder.
On a real note, continue investing and playing it safe with ETFs at the moment if we’re sensing an upcoming recession. Depending on the severity, playing in individual stocks could potentially wipe out some funds you’ve invested. Let’s see whether this ship sails or sinks.
Have a great week,
JT