Investors Bond Over Yield Curves
Yesterday, the world’s best and worst recession indicator struck again! The more the Federal Reserve yapped, the worse it got, investors fearing the market peacekeeper had left its watch post!
The more investors read Fed meeting minutes, the hastier the retreat from stocks. The market was spooked by Fed Chair Jerome Powell’s ‘no big deal’ approach to simmering Sino-US trade tensions and slowing global growth. He sees the economic ship sailing straight. The market sees the economic ship sailing straight towards an iceberg!
The reflex response? A mass migration into low-risk, dependable, Steady-Eddie bonds that pay a fixed income regardless of what Trump had for breakfast. As bids flew in for 10-year bonds, their yields dipped below that offered by 2-year bonds. Sounds like a minor market musing, but it’s actually a notorious recession warning that has, rightly or wrongly, compounded fears of a crash. We call it the inverted yield curve!
Such jargon divides opinion. Some are already saying their goodbyes after this inversion, knowing it’s predicted all of our previous recessions. Others are merely getting on with business, reasoning that investors invert the curve as they predict doom and rotate into bonds. Joining in with the stock sell-off would be to take your orders from the market, which we all know, can’t lead to outsized returns.
Whether an inverted yield curve is the tremor before for a massive earthquake, we don’t know. What we do know is that this is, indeed, a tremor. Fed members accepted blame for yesterday’s inversion but lacked much shame or guilt.
Jerry has some explaining to do!