“It’s been a very frustrating trade, you need the stars to align, to make the curve meaningfully steepen here.”. [20] [21] The month average of the 10-year vs 3-month (bond equivalent yield) difference reached zero basis points in May 2019. It inverted again briefly in March and then again in June ’06.   and the 10-year note yield I have written four books, served as an expert witness in numerous arbitrations, mediations and Federal lawsuits and am Vietnam veteran and former Air Force pilot and instructor. 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A slowing world economy has pushed down bond yields across the world, drawing income-hungry investors to the U.S., one of the few pockets of financial markets where yields for developed-market government debt is still positive. And more hawkish members of the Federal Open Market Committee, the central bank’s rate-setting body, such as Boston Fed President Eric Rosengren, have said additional easing could amplify financial instability. TMUBMUSD03M, A different look into what’s behind the yield curve inversion … and what to watch out for as 2019 rolls on. But a more pessimistic read would underscore how the steepening of the yield curve, after an inversion, has preceded the last three recessions. 13 December 2018 - 08:00 By Reuters. An inverted yield curve is said to be indicative of a recession. The U.S. Treasury yield curve just inverted for the first time in more than a decade. The invisible hand prices bonds accordingly. “The odds of a recession are coming down with a steeper yield curve. In turn this promotes a herd mentality that further moves markets. There was no recession. In theory this signals that the economy will soften in the future and profits will decline causing investors to sell stocks and buy the relatively safer bonds. Recession concerns should be eased now that the yield curve no longer is inverted since it has been a reliable bond-market harbinger of past economic downturns. Normally we would expect that investors would receive higher yields for taking longer duration bonds. Contact me at frank@investorsolutions.com, © 2021 Forbes Media LLC. Ron Insana @rinsana. We serve individuals & trusts, pensions and not for profit organizations. As shown in the chart below (based on data from August 27, 2019), the yield curve was inverted as short-term interest rates (1 and 2 month maturity) were higher than the … I began my career in the brokerage business but became disillusioned with the unscrupulous practices. suggested that betting on a steeper yield curve, The yield curve is steepening, and that’s not good for investors. Yet, this time around, the Fed has been hesitant to indicate a need for further rate cuts beyond its “mid-cycle” adjustments. I am the founder and principal of Investor Solutions, a Miami-based NAPFA fee-only registered investment adviser with more than $900 million of assets under management. The Fed is very aware that a prolonged inverted yield curve won’t be interpreted as a healthy sign. Yield curve inversion is a classic signal of a looming recession. An inverted yield curve is almost guaranteed to spook investors. However, most market experts don't consider the yield curve to be inverted until the two-year rate rises above the 10-year rate. US Treasury Building in Washington Image: William Philpott/Reuters . now trades at a positive 10 basis points differential, after inverting as low as negative 51 basis points in August. Foreign investors may seek currency, political, economic stability, or a place to park their trade surpluses. Since 1950, all nine major US recession have been preceded by an inversion of a key segment of the so-called yield curve. After the inversion in June, the spread stayed inverted for the better part of the next year. (However, the yield curve did not invert in 2015.) Sunny Oh is a MarketWatch fixed-income reporter based in New York. 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It offered a false signal just once in that time. If the Federal Reserve or other central banks believe the economy is overheating with a threat of inflation building, they will raise short term rates to head that off. Published Wed, Aug 28 2019 1:51 PM EDT Updated Wed, Aug 28 2019 6:33 PM EDT. Bond rates and yield curves are subject to all kinds of manipulations. The yield on the 10-year note fell to 2.44. ... from two to 10 years would invert at least briefly by the end of 2019. Others say a slowdown isn't a sure thing and that the yield curve is … In 2006, the 2-year yield moved above the 10-year in January and then the spread flipped again. It becomes a more productive environment for risk assets and [corporate bonds],” said Thanos Bardas, co-head of global investment-grade at Neuberger Berman, in an interview. Referencing is the world ’ s behind the yield curve is no longer inverted swooned until the two-year rate above. 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