Yield Curve Inverted…..So What?

Earlier today, the US yield curve inverted.

Earlier today, the US yield curve inverted.  The yield curve inversion means that the closely watched yield difference between the 10 year yield and the 2 year yield turned negative, putting in a low today of -.019. 

Source: TradingView, City Index

So what? 

Historically, going back the last 7 recessions, every time this yield curve has turned negative it has led to a recession.  The last time the yield curve was inverted was in May 2007!  As of the time of this writing, however, the difference in yields has bounced slightly and is currently 0.015.

Source: Tradingview, City Index

Does this inversion of the yield curve mean that the world is going to fall apart tomorrow?  Not necessarily.  As a matter of fact, equity indices have actually BOUNCED for months after the yield curve has inverted.  The recessions that followed had not begun for months the inversion.

So will we have another recession?  Only time will tell.  However, an inverted yield curve suggests that one may be ahead, albeit months down the road.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.