Yield Inversion telling us trouble is coming.
So besides the deteriorating economic data (use PMI not CPI- CPI is what has already happened akin to looking at the rear view mirror in a car. PMI is looking at what IS coming akin to looking through the windshield in a car), what is another signal that a recession is coming? The yield curve and how people would rather hold money in the short term rather than the long term because the future is uncertain.
I have a monthly chart showing the 10 year yield paired with the 3 month yield. The red line is zero. When we are above the red line, the 30 year yield is higher than the 3 month…which is how things should be. When you invest for the longer term, you expect to get a higher yield.
When we are below the zero line, the 3 month is yielding more than the 10 year. An inverted yield curve. If you look at the the yield curve currently (data from CNBC website), the 1 month is dominating everything except the 30 year. The 1 month and 3 month have been alternating for domination recently.
U.S. Treasurys
Yield
US 1-MO 2.144
US 3-MO 2.123
US 6-MO 2.10
US 1-YR 1.996
US 2-YR 1.86
US 3-YR 1.823
US 5-YR 1.854
US 7-YR 1.952
US 10-YR 2.074
US 30-YR 2.596
The yield curve has predicted 7 out of 9 recessions. It is a pretty good indicator as it tells us that people are looking for shorter term gains and return rather than the long term. They are nervous and uncertain about the long term.
You can see with the chart I posted, that when we dipped below, they occurred during periods of a market crash. We had the dot com bubble in 2000, and of course the great financial crisis of 2008.
As you can see, we have dipped below, or inverted recently. Since May to be exact.
Expect the Federal Reserve to cut rates MORE than once this year in order to drop the yield on the short end of the curve to attempt to normalize the yield curve.
The bond market is telling us that rate cuts are coming. I also mentioned this in my previous post about the US Dollar.
The problems of 2008 were not solved. We papered over them with more debt. This next crisis will be much worse.
I have a monthly chart showing the 10 year yield paired with the 3 month yield. The red line is zero. When we are above the red line, the 30 year yield is higher than the 3 month…which is how things should be. When you invest for the longer term, you expect to get a higher yield.
When we are below the zero line, the 3 month is yielding more than the 10 year. An inverted yield curve. If you look at the the yield curve currently (data from CNBC website), the 1 month is dominating everything except the 30 year. The 1 month and 3 month have been alternating for domination recently.
U.S. Treasurys
Yield
US 1-MO 2.144
US 3-MO 2.123
US 6-MO 2.10
US 1-YR 1.996
US 2-YR 1.86
US 3-YR 1.823
US 5-YR 1.854
US 7-YR 1.952
US 10-YR 2.074
US 30-YR 2.596
The yield curve has predicted 7 out of 9 recessions. It is a pretty good indicator as it tells us that people are looking for shorter term gains and return rather than the long term. They are nervous and uncertain about the long term.
You can see with the chart I posted, that when we dipped below, they occurred during periods of a market crash. We had the dot com bubble in 2000, and of course the great financial crisis of 2008.
As you can see, we have dipped below, or inverted recently. Since May to be exact.
Expect the Federal Reserve to cut rates MORE than once this year in order to drop the yield on the short end of the curve to attempt to normalize the yield curve.
The bond market is telling us that rate cuts are coming. I also mentioned this in my previous post about the US Dollar.
The problems of 2008 were not solved. We papered over them with more debt. This next crisis will be much worse.
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