Yield Curve Continues To Flatten

Posted by on March 2, 2017 12:59 pm
Tags:
Categories: Uncategorized

Couple of observations from the chart above (click to enlarge).

  1. Prior market tops, in 2000 and 2007, coincided with yield curve flattening and inversions.
  2. Today’s yield curve has flattened considerably since 2014.
  3. The spread between 30 and 10 year bonds are just 60 basis points now.
  4. The above suggests that the US Economy and banking profits might be soon coming to a screeching halt.

The above can be interpreted in one of two ways. 

First, we can look at the chart above and say that we have nothing to worry about. That the yield curve is not yet flat or inverting, hence, party on.

At the same time, we can argue that the yield curve is now highly distorted. Due to the Fed policies of keeping interest rates at zero for nearly 8 years. We can also argue that the long end of the yield curve catching up to the short end while the short end is at zero. And that is about as bad as it gets.

Why? 

It can be argued that it would be the mother of all yield curve inversions. Not only signalling a massive recession ahead, but also the fact that no stimulus is available. With the 30 year bond yielding just 100 basis points more than the 2-year bond, the above might soon become a reality.

If you would like to find out exactly what happens next based on our Timing and Mathematical work, please Click Here.