Chart doctor: the mysterious music of the yield curve

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These days you can make music from anything i’m going to show you how to take 100,000 numbers and turn them into something musical this is the mysterious music of ee okay there’s a chart that analysts use frequently to predict what might happen to the economy and it’s actually quite a simple chart the y-axis just shows the interest rate and the x-axis shows us

For each bond what its maturity date is so on the left hand side it can either be very short one month three months six months on the right hand side it can be very long dated up to thirty years and this yield curve here from 1992 is fairly typical of what you would expect from a from a regular yield curve in that it’s the longer dated bonds that generate higher

Returns the thing is where the yield curve is that these rates change on a daily basis and so the shape of the yield curve can change so one of the things that can happen is it can flatten and so this is the uecker from 1989 and you can see that it actually the yields are very very uniform it’s a very very flat yield curve and this is a sign that people are starting

To express uncertainty about what might happen to the economy and in extreme cases the yield curve can invert like this so on the left hand side now that you’ll see it’s the shorter bonds they’re generating the higher yields and these inversions many analysts consider them very very important every recession in the us since the world war two has been preceded by

One of these inversions because the yield curve changes on a daily basis tracking it over time can be difficult and one of the things that we can do is we can use animation to show us what’s happening on a daily basis so here what i’m going to do is i’m going to set the yield curve to animate from 1979 and you can see that five days animating per second here so we

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Get a sense of how the yield curve that changes over time if i speed that right up you can see that actually the yield curve is very very active particularly at the shorter end of the yields there’s a lot of movement with the yield curve animating so quickly it can be difficult to remember how it’s traveled over time so one of the other things that we can do is

Introduced some some ghosting of outlines from these p conversions so we can remind ourselves of where the yield curve has been at different points so you can see here october 1979 was an inversion three months before recession and similarly in 1980 this generates an animation of about three and a half minutes and it’s eerily silent so could we actually use the data

To produce sound as well as a visual that’s where this process of data sonification comes into play and what we’re going to do with sonification is we’re going to take the y-axis so that’s from 0 to 15 percent on the yields of our bonds and we’re going to map that into a four octave scale of musical pitches and if i if i take the yield curve back to its regular

Shape and we introduce the sonification element you get you get to hear what it might actually sound like you can see that that’s the rising pitch as the yields rise so does the pitch that’s an upward ascending arpeggio that represents a fairly regular yield curve and going back to the different shapes of the yield curve that we looked at earlier we can start to

Hear what they sound like so the flatter yield curve sounds pretty much as you would expect it’s the same notes repeated again and again because they’re more or less identical yields and then for our inversions so those are the points where the short-term bonds are the highest then that ripples downwards and in the case of this inversion from 1980 you can notice

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That the overall pitch of the yield curve is higher because the yields are very high they’re they’re up at 15% at this at this point in time now the only problem now with our sonification is it’s reflecting the what we’re seeing on screen very nicely but at two seconds per day this would generate an incredibly long animation and piece of music and if we speed it

Up then we get a little bit of a problem is that now animating five days per second the meaty the music of the yield curve is quite difficult to pick up on the arpeggio is too fast for us to discern so instead what we can do is actually speed the animation right up but only play every 30 days the music and that generates something a lot more melodious and you can

Hear those changes in pitch the level of the pitch and the direction of the pitch really following what we’re seeing on the screen now in terms of the animation and in many ways now the yield curve fuels alive with both sound and audio being generated from the data one issue now is that in audio space we don’t have the equivalent equivalent of our year markers or

Our date markers we don’t know what the passage of time is in the audio space so the first thing that we can do is introduce a bass drum and all the bass drum is going to do is it’s synchronized to the month so when you hear a bass drum the gap between the bass drum is one calendar month and you can see that’s perfectly synchronized to the eight on the screen what

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We can also therefore do is introduced to be tracking the month let’s try and track the years this time what we’ll do we’re gonna add on a year in vocal form 82 83 83 you can see that i’ve placed a slight delay at a repeating echo on the voice so that it fades out through the year so you get a real sense of progression over time and then to provide a final join

Between what we’re seeing on screen and what we’re hearing we can also play a sound effect whenever those peak inversions appear on screen so i’m going to take it right back now to 1979 with four layers of sound on 1980 you can see now that there’s a perfect join between what we’re seeing on screen and what we’re hearing in the audio so we really have sauna five

This yield curve now why might that be a useful thing to do well there is an argument actually by hearing what you’re seeing it helps you to reinforce that experience generally so it could make it much more memorable for you if you can hear the data as well as see it but also for those people who can’t see this is a tremendously useful technique because actually

If you if you close your eyes you’re actually able to pass this yield curve data using audio alone the data that i used on this project is freely available on the us treasury website and i’ve posted details of the tools that i used in the online article along with links to a new tool that allows you to create sonification without any coding feel free to post links

In the comments to any visualizations that you’ve made yourself

Transcribed from video
Chart doctor: the mysterious music of the yield curve By Financial Times

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