Short tenor bond yield curve has inverted
First the good news, the more important long term bond yield curve (10 year minus 2 year) remains positive at +17 bps, up from recent low of +11 bps observed December 19, 2018.
Now the bad news, the less important short term bond yield curve (2 year minus 3 month) has inverted to -2 bps on January 3, 2019, first inversion since December 2007 through March 2008, leading up to the financial crisis.
Major bond yield curves are mixed;
- Short tenor -2 bps, down -2 bps week on week, setting fresh new lows
- Long tenor +17 bps, down -4 bps week on week, up from recent low +11 bps observed December 19, 2018
Long tenor yield curve inversion implications;
- Fed Rate changes today take ~79 days to equilibrate yield curve
- If yield curve goes inverted, high probability recession will follow ~393 days later
We’re following this closely, as inversion predicts recession, and recessions cause;
- Crude prices fall -11% on US dollar rising +4%
- Natural gas & power prices fall -34% on commercial and industrial sector demand destruction
For cEntellect’s Proprietary Research & Analysis on the yield curve, please see “Yield Curve Relationships” published June 28, 2018.
– Mike Reed