What A Yield Curve Inversion Means For Traders

Bloomberg

In an "economic letter" published by the San Francisco office of the U.S. Federal Reserve (Fed), Michael D. Bauer and Thomas M. Mertens summarize the implications of an inversion succinctly: "Every U.S. recession in the past 60 years was preceded by a negative term spread, that is, an inverted yield curve". "It's the what-if scenario".

The phenomenon known as "flattening" of the yield curve is worrisome, but it is the "inversion" of the curve - when the two-year rate moves higher than the 10-year rate - that scares the markets most.

The closely followed spread between the 2-year Treasury note yield and the 10-year Treasury note yield remains positive.

No - and that's why this latest flip in yields may not augur recession.

It is not a sure indicator, however, with an inversion in 1966 and a very flat curve in 1998 failing to lead to recessions.

Investors are increasingly concerned, however, by a flattening of the spread between two- and 10-year Treasurys, a more fundamental benchmark of market health.

Gundlach said the Fed will need to be especially careful in its choice of words when they meet this month to deliver on their promised rate hike.

Recent news has contributed to flattening the curve, including a speech on November 28 by Fed chair Jerome Powell interpreted by many as signaling a United States slowdown. "Lower inflation expectations, induced mostly by the drop in oil prices and also in part by soft inflation data; and a lower term premium, likely pushed down by deteriorating sentiment about global growth". "I do think it's overdone with short-covering and unwinding of money-losing positions".

Fortnite season 7 gets snowy, adds planes and a new creative mode
Discriminatory language, hate speech, threats, spam, and other forms of harassment or illegal behavior will not be tolerated. For more tips, tricks, and guides for the new season, be sure to check out our ever-expanding Fortnite Season 7 guide wiki .

DNA 'fingerprint' brings prospect of fast test for cancer
Now doctors use symptoms and a raft of tests and biopsies to determine if cancer is present which can sometimes take months. The research team has already tested over 200 tissue and blood samples, recording 90 percent accuracy.

Buzzcocks co-founder Pete Shelley dead at 63
Following the band's breakup, Shelley released a string of solo albums, including 1981's Homosapien and 1983's XL1. They were the first punk band to have their own record label, releasing debut EP Spiral Scratch on New Hormones.

While some regional bank presidents have been explicit in arguing the Fed should hold off raising rates to avoid an inversion, the consensus has been consistent: stay the course. The government's November jobs numbers will also include an update on average hourly earnings, which can be used to see how fast wages are rising across the USA economy.

Some business sectors like auto and housing are flagging due partly to rising interest rates, while debt-laden companies have raised concerns whether they could keep up with their debt payments as borrowing costs are rising.

The yield curve inversion and comments from Fed speakers are causing investors to rethink the potential of a recession or if rate hikes are nearing the top, said Minh Trang, senior FX trader at Silicon Valley Bank in Santa Clara, California.

Some traders said the dramatic curve flattening may be overdone and may revert if the government's November payrolls report out on Friday were to show solid jobs and wage growth.

The inverted yield curve persists for a second day.

The Fed, as of September, expected to hit 3.1 percent by the end of 2019 and continue as high as 3.4 percent the following year.

Along with the renewed narrowing of the yield curve, economists on December 3 were parsing a conflicting set of new data.

Related news:

Hot News

isis-killer-beheading-video-story-top Backpacker's disappearance being treated as suspected murder
Dec 08, 2018 - 11:03
Earlier on Saturday police released images of her necklace and watch and urged anyone who recognised the items to come forward. Her other belongings had remained this week at Base Backpackers, where she had been booked in to stay until today.

isis-killer-beheading-video-story-top Democrat Dan McCready Withdraws Concession Amid Election Fraud Allegations
Dec 08, 2018 - 10:58
The board is meeting later this month to hear evidence, but it's unclear whether the race will be settled then. The board could order a new election. "He is a man of honor, and integrity, and we stand by him personally".

isis-killer-beheading-video-story-top Trump meets with German auto execs, tweets 'I am a Tariff Man'
Dec 08, 2018 - 10:58
We are merely entering the next phase of what will be an enduring economic competition between the world's two largest economies. The market is closed Wednesday as the United States celebrates a National Day of Mourning for the late President George H.W.

isis-killer-beheading-video-story-top Huawei CFO faces fraud accusations from USA in Canadian bail hearing
Dec 08, 2018 - 10:27
Huawei has been a subject of USA national security concerns for years and Meng's case echoes well beyond tariffs or market access. Meng is being accused of fraud by the US government, which wants her extradited from Canada to face the charge.

isis-killer-beheading-video-story-top Trump to name Heather Nauert as United Nations ambassador tomorrow, reports say
Dec 08, 2018 - 10:25
Nauert, who became State Department spokeswoman under former secretary Rex Tillerson , did not respond to requests for comment . She is a graduate of the Columbia University's Graduate School of Journalism and Mount Vernon College in Washington .

isis-killer-beheading-video-story-top Around 90 mafia suspects held in worldwide sweep
Dec 08, 2018 - 10:22
Wednesday's raids come a day after the new suspected head of the Cosa Nostra and 45 other alleged gangsters were arrested. Eurojust, the EU's Judicial Cooperation Unit, is a unit established to fight cross-border organized crime in Europe.

isis-killer-beheading-video-story-top Rajinikanth's '2.0' enters the 500 Cr club
Dec 07, 2018 - 05:22
The Hindi version of the film opened at Rs 20.25 crore and has maintained a good pace even during the weekdays. On Wednesday, the film raked in Rs 9.50 crore, which goosed up its total to Rs 132 crore in India.

isis-killer-beheading-video-story-top Trump golf club employs undocumented workers
Dec 07, 2018 - 04:59
An undocumented immigrant revealed she was employed as a housekeeper at Trump's National Golf Club in Bedminster, New Jersey. President Donald Trump answers questions from the press while departing the White House on November 29 in Washington, D.C.

isis-killer-beheading-video-story-top Google Allo Joins Other Dead Products List, to Stop After March 2019
Dec 07, 2018 - 04:17
Duo will continue being developed as the company says it has seen strong growth across both major smartphone operating systems. The latest victim, which will soon class as a failed experiment, is the chat app for Android , iOS , and the Web called Allo.

isis-killer-beheading-video-story-top Ray J Sends Prayers To His "Brother" Offset Amid Cardi B Breakup
Dec 07, 2018 - 04:01
Summer Bunni , the woman who Cardi B's husband, Offset , allegedly cheated on her with, has tearfully apologised to the rapper. "I wish them the best I hope they get back together", he said, as seen in the video below.

isis-killer-beheading-video-story-top Pat Cummins Just Nailed One Of The Best Run Outs You'll See
Dec 07, 2018 - 03:27
It was doubly frustrating for Kohli, who had needed just eight to reach 1,000 Test runs for India in Australia . In the meantime, the man from Rajkot brought up his first Test ton in Australia .

isis-killer-beheading-video-story-top Pregnant Duchess Meghan Markle's Growing Baby Bump Visible During Christmas Carol Event
Dec 07, 2018 - 02:44
The Duchess of Cambridge's sister, Pippa Middleton, and her husband, James Matthews also attended the ceremony. At the event, the 36-year-old royal gave a touching speech to those whose families were deployed.

SpaceX Falcon 9 rocket lands in ocean after successful cargo launch
Dec 07, 2018 - 02:43
A SpaceX commentator called it a "bummer", but noted it was secondary to the main mission of getting the Dragon capsule to orbit. At least three more launches - two from Cape Canaveral , one from Vandenberg - are expected before the year is out.

isis-killer-beheading-video-story-top United battle to draw with Arsenal, Liverpool march on
Dec 07, 2018 - 02:17
Emery said: "The 18 can be for Saturday and also we are doing one plan with him, maybe he can play against Qarabag". "We are going to look at when he can come back with us". "We are waiting", Emery said.

isis-killer-beheading-video-story-top Canadian Heavy Crude Surges After Alberta Imposes Oil Cuts
Dec 07, 2018 - 01:29
The move was a bid to keep the project alive after Kinder threatened to walk away amid fierce opposition from British Columbia. Not all the producers were happy with the Notley's order, with critics arguing that the markets can deal better with prices.