Well, it finally happened—the yield curve inverted. Now note that it was the shorter end of the curve that inverted, as the 3-month Treasury bill (and 1-year T-bill) now yields more than the 10-year Treasury for the first time since 2007. This matters because an inverted yield curve is the bond market’s way of saying there is a potential recession on the horizon. “The yield curve inversion is something that nearly everyone is talking about, given its perfect track record at predicting recessions,” explained LPL Senior Market Strategist Ryan Detrick. “At the same time, however, we simply aren’t seeing other areas of the economy that would confirm a recession just yet, so there is more to this story.”
Please note that there is no one true “yield curve,” as the yield curve simply looks at the yields of a shorter-dated fixed income instrument and compares it to a longer-dated one. In fact, the more commonly discussed 2-year/10-year yield curve spread hasn’t inverted, and it is actually above the early December 2018 lows.
Here are 11 things worth considering regarding the yield curve.
In summary, an inversion on part of the yield curve may suggest trouble ahead for the economy, but don’t forget that economic growth and potential stock market gains can continue for years after the initial inversion. Additionally, with credit markets holding up well, employment still strong, and wages still increasing, we don’t yet see the necessary combination of worries that could suggest a recession is indeed imminent.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
U.S. Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. They are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
For Public Use | Tracking # 1-837002 (Exp. 03/20)