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There was a time bonds were considered the boring, predictable asset—all the action was in stocks—but this week was an exciting one for fixed income. The US yield curve inverted. This is when short-term rates are bigger than rates on long-term bonds. It is unusual because long-term bonds are normally considered riskier and pay more yield. It set off alarm bells because, in the US since the 1960s, an inverted curve is often followed by a recession within three years (paywall).
But there are reasons to not worry. Other economic data has been positive, and no one has a good idea why an inverted curve tends to predate a recession. It could be because long-term bonds reveal investors’ expectations about future growth and lower rates mean more pessimism. But that assumes bond investors know something investors in other markets don’t. Or it could just be that in a more global world, the yield curve tells you less about local economic conditions than it used to.
The other cause for concern is how low rates have been. The US 30-year bond is offering less than 2% for the first time ever. Meanwhile in Europe, the entire yield curve in Germany and Switzerland is negative. It seems to defy all economic logic. The foundation of finance is built on the assumption that a dollar today is worth more than a dollar tomorrow.
But there are reasons investors might put off spending, even if it’s for a price. It could be investors fear a recession and want to store their money in the safest asset available. Or investors may be financing future spending, when they know they’ll need money, as in the case of people saving for retirement. An aging population and lower inflation are why many expect interest rates to remain low for the foreseeable future.
As boring as the bond market has been, it can be unpredictable. If the risk outlook changes, rates will increase quickly, and an economy that’s become accustomed to low rates may be in for trouble. —Allison Schrager
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Crossing the line. The peaceful protests in Hong Kong this summer have endured partly because they’ve lacked any clear leadership, making it hard for authorities to target anyone in particular. That advantage became a liability on Aug. 13, when some demonstrators at an airport rally tried to mete out extrajudicial justice against suspected undercover agents. Mary Hui reports on the chaotic incident and the protestors’ search for a way forward.
Stacking up nicely. Last year, Quartz was the first to report on a Swiss startup proposing to store renewable energy by stacking concrete blocks. This week that company, Energy Vault, landed a $110 million investment from SoftBank’s Vision Fund. As Akshat Rathi explains, the bet could prove to be a smart one, with the venture relying upon low-cost materials and promising to scale up quickly.
Familiar playbook. Cambridge Analytica may have closed shop, but its voter-targeting methods are not about to die out so easily. Indeed they are front and center in the marketing materials of IDEIA Big Data, an international political research firm that claims to work with parties in Spain, Brazil, and elsewhere. Olivia Goldhill compares its pitch-deck slides against ones from its scandal-ridden predecessor, noting the similarities along the way.
An eye for real estate. Donald Trump routinely expresses strange ideas, so it was easy to dismiss reports this week of his interest in buying ice-covered but strategically located Greenland. But as Ephrat Livni explains, other US leaders have also been keen on purchasing the autonomous Danish territory. Much of America’s landmass historically came from land purchases, and the US military already has its northernmost military base in Greenland.
How websites manipulate us. An extensive new study of shopping websites found them filled with “dark patterns”—sneaky design techniques that get users to hand over information or money. Amanda Shendruk and Marc Bain unpack the tricks that sites employ, in part by using them to make sure you read their reporting to the end. Hurry, this article is only available for a limited time!
Five things elsewhere that made us smarter
A messy legacy. That the British Empire pursued a policy of “divide and rule” is well known. Less discussed, it also employed “divide and quit,” leaving behind “unsatisfactory arrangements that were likely to ferment into conflict later down the line,” writes Amy Hawkins in Foreign Policy. Today Kashmir and Hong Kong are both contending with that legacy, each facing a domineering central government chipping away at their autonomy. Locals are paying the price.
Strange feed. Think of plastic pollution and what often comes to mind is the vast amounts of it collecting in the world’s oceans. But it’s causing damage elsewhere, too, including in rural Texas. As Lara Korte writes for the Texas Tribune, horses and cattle are eating plastic bags and dying of suffocation or digestion blockages. The problem looks likely to persist, with regulation nonexistent and farmers and ranchers outgunned by chemical-industry lobbyists.
Apocalypse-proof condos. In America’s vast interior, enterprising property developers are taking advantage of old missile silos and a growing unease about where the world is headed. For the New York Times, Julie Turkewitz profiles companies offering luxury apartments in deep underground spaces initially designed for nuclear-warhead storage and other Cold War needs. The buyers are prepping for the end times, and business, so to speak, is booming.
Exporting surveillance. The US has long sounded the alarm about Huawei, warning allies about alleged ties between the telecommunications powerhouse and the Chinese government. But the firm already dominates markets in Africa. What’s more, according to the Wall Street Journal, Huawei employees have “personally helped African governments spy on their political opponents” in at least two cases. Chinese-style surveillance, it seems, is in demand.
The road to success. Planning school-bus routes doesn’t sound complicated, but don’t tell that to Boston Public Schools. In an effort to reduce inequalities that result from isolating students to their neighborhoods, it lets parents select a school from about 10 options. That and other factors have led to bus routing so complex that officials turned to algorithms for help, as Emma Coleman reports for Route Fifty. The result? A more efficient system—and more money available for teaching.
Our best wishes for a relaxing but thought-filled weekend. Please send any news, comments, bus-route maps, and bunker brochures to firstname.lastname@example.org. Join the next chapter of Quartz by downloading our app and becoming a member. Today’s Weekend Brief was edited by Steve Mollman and Kira Bindrim.