This curve is NOT inverted, and i wish the press and inexperienced analysts would stop feeding on a naive and crass oversimpification. The T bill rate relative to the long T bond is far from inverted. Forget about 2 or 3 vs 5, and focus on 1 vs 10 or 20. And not “yell fire” or sound alarms until Fed Funds come closer to that level
What we have now (or at least in the works) is a HUMPED yield curve, which is not unusual in late cycle markets. Any student of interest rates will confirm this. Its predictive value is far less ominous. If anything it tells us that a recession is possible in several years.
Humped yield curves have been “transitional” to inverted curves, so it’s not unrealistic to put out the yellow flags. But it’s equally important to remember what Lalso Beryini’s historical research clearly shows about the run-up in risk asset prices during this phase of a long cycle.
Institutional investors (e.g. pensions and insurance companies) will buy the 30 year bond to lock in duration if they smell a serious recession risk, so the 10 vs 30 T-bond segment will have far more predictive value if it inverts more than something like 25-35 bps.That will signal that the big money has moved to a Crisis Risk Offset strategy at which point I’d also head for the hills.
And for students of history, see Sidney Homer’s classic work on the History of Interest Rates. Treasury curves in the 1800s were flat, humped and backwardated during many business expansions. That was before the Federal Reserve, historians note, but the point is that a disinflationary world (technology disruption) with relatively low rates of wage inflation can have very different market signals than what we all learned the hard way by our experiences in 2H of the last century.
None of this makes yield curve analysis useless. Schumpeter’s work established the conceptual framework which stands to this day. But let’s use the tool correctly, folks.
Also this past sell off was triggered by program trading which was signaled by a preset factor of an inversion no matter how small. I think it was .2 % not quite sure. That triggers an auto sell of of industrial and financials and again triggering more automate mayhem.
Div and Cap gains to be reinvested at the end of the month.
Revisiting all on 1/1/19
Looks like you plagiarized your reply from Politically Incorrect’s post from Chill LoL. Come up with some original thoughts newbie!