Displaying items by tag: yield curve

(New York)

The big market ruction of the last few days has sent the yield curve inversion to very worrying levels. The spread between three-month bills and ten-year Treasuries has widened to minus 32 basis points. A yield curve inversion has preceded every recession for the last 50 years. “The US has been an island of prosperity in a sea of weakness, but that looks to be ending as the impact on the consumer side from the new tariffs is likely to be bigger than the previous ones”, said a senior portfolio manager at PGIM fixed income.

FINSUM: The last time the yield curve was this inverted was April 2007. That fact alone is major warning sign.

(New York)

The yield curve inversion has largely faded from headlines. Things that become the status quo often do! But in that development lays a hidden but worrying truth—the longer the yield curve is inverted, the more likely it is that there will be a recession. The inversion has been in place for over a month now and it is actually getting worse, with long-term yields continuing to drop. A yield curve inversion has proceeded every US recession in the last 50 years.

FINSUM: If the Fed proceeds with cuts, it seems like the inversion may abate. But then again, the rate cut would be an implicit admission that we are on the way to a recession.

(New York)

The big rally in ten-year Treasury bonds has created a worrying situation in the bond market—a steepening inversion. Despite the broad based rally, the negative spread between ten-years and three-month yields actually grew, as did the spread between two- and thirty-year bonds. Oil also plummeted 5%, as did the Dollar, a reflection of traders’ bets that the US is likely headed for a downturn and easier monetary policy.

FINSUM: The current inversion could just be a product of markets flows dictated by the trade war. What is worrying is that negative spreads actually widened instead of just staying flat, which adds more weight to the inversion-recession story.

(New York)

The yield curve has been injecting fear into markets all year. Investors understandably panicked when the spreads between short-term and long-term Treasuries bonds inverted a few weeks ago. However, investors have been looking at the yield curve with the wrong lens, argues Barron’s. If you actually pay attention to what has been happening recently, you will see a distinct picture of spreads rising, which is a very bullish indicator. Moving averages on the spreads have been growing, the first instance of such in a long time. A number of macro factors are supportive of wider spreads, including a now dovish Fed and strongly rising oil prices, which have injected more fear of inflation.

FINSUM: We think spreads are headed in the right direction. Taken as a whole, the market is starting to look like a good buying opportunity right now. It seems odd to say given stocks are at an all-time high, but if you look at the back drop, the situation looks pretty bullish.

(New York)

Every investor seems to assume that this bull market is nearing its expiration date. Good things must come to an end, after all. However, Barron’s is arguing (rather adamantly) that this bull market could perhaps go on for another ten years. Reminding us of the old adage that bear markets don’t die of old age, Barron’s says there is just no sign of real weakness. “As far as the U.S. economy is concerned, there is no obvious sign that it has deteriorated”, says the publication. What about the yield curve? They say that is just an adjustment to tighter monetary conditions and not predictive of a recession in this case.

FINSUM: There is undoubtedly an element of superstition/intuition which is making investors feel like this bull run must come to an end soon. But the reality is that the underlying conditions for that to happen may not be in place.