When the bond market send a signal, please listen

Posted: May 23, 2016 in Uncategorized

In various occasion I wrote this same post…and in various occasion after a little while the market tanked.

The bond market is entirely made by professionals – so there is not “sentiment” or running for yield. It is a pure logic play.

The US yield curve is flattening (the short term US note is approx 0.8% and the 10 years is 1.8%)…a difference of 0.9% – lowest since December 2007.

When the curve inverted (2 year note with a yield higher then the 10 years ) the USA   ALWAYS went into recession (well apart 1998, but it inverted for a very short time – a false signal)

Now with this low yield environment is really hard for the yield curve to invert – so we could get a recession just with a flattening yield.

Not to be too pessimistic, a flat curve yield could be just a signal from the market to the FED that hiking interest rates  in June is a policy mistake as the economy is not strong enough and the real scenario is muddle through and not economic growth, as the politicians would love us to believe.

Anyway…another data point to add to the watchlist

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