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Tuesday, 04 December 2018 14:48

Don’t Panic, Yield Curves Aren’t Everything

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(New York)

This is a day where investors need to take a deep breath. Markets are plunging, the yield curve just inverted, and there are major fears about the durability of the US-China “truce”. One thing to take heart in is that even though they are good predictors, a yield curve inversion doesn’t mean everything. It is important to note that it is the two and five-year Treasuries that have inverted, not the two and ten, which could mean this is just a temporary kink. For instance, in 1998, this pair turned negative without the rest of the curve following suit.

FINSUM: On top of the last point there, remember that inversions don’t cause recessions, they are just the market predicting slower long-term growth. That said, they seem to create self-fulfilling prophecies.

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