• 850 days Will The ECB Continue To Hike Rates?
  • 850 days Forbes: Aramco Remains Largest Company In The Middle East
  • 852 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,252 days Could Crypto Overtake Traditional Investment?
  • 1,257 days Americans Still Quitting Jobs At Record Pace
  • 1,259 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,262 days Is The Dollar Too Strong?
  • 1,262 days Big Tech Disappoints Investors on Earnings Calls
  • 1,263 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,265 days China Is Quietly Trying To Distance Itself From Russia
  • 1,265 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,269 days Crypto Investors Won Big In 2021
  • 1,269 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,270 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,272 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,273 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,276 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,277 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,277 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,279 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Yield Curve Casts Doubt on 'Robust Recovery' Theory

A week ago Fed Governor Dudley announced "U.S. Economic Outlook Looks Brighter". My response was Ring! Ring! Goes the Bell.

Today, Curve Watcher's Anonymous offers a few charts that show the bond market ringing a bell in disbelief of Dudley.


Yield Curve as of November 28, 2014

Yield Curve as of November 28, 2014


Curve Analysis

  • The yield curve flattened, then inverted prior to the last recession.
  • The yield curve steepened well ahead of the end of the recession.
  • Since then, the yield curve has steepened twice and flattened twice.


What's Next?

Starting at the beginning of 2014, short-term yields (2-year and 5-year) have risen while long-term (30-year and 10-year) have declined.

In a strengthening economy, yields on the long end of the curve typically rise faster than yields on the short end.

Those waiting for the typical recession indicator (an inverted yield curve where short-term bonds yield more than long-term bonds) may as well be waiting for Godot with the Fed holding 3-month rates near zero percent.

Nonetheless, expectations of a major Fed tightening cycle are pretty much the norm. If the Fed hikes (which I doubt), then I fully expect to see action similar to the first yield-curve flattening box in the above chart. If the Fed continues to hike, expect a quick inversion.

Regardless, the bond market does not believe this happy talk from the economic cheerleaders, and neither do I.


30-Year Yield Minus 5-Year Yield

30-Year Yield Minus 5-Year Yield


10-Year Yield Minus 5-Year Yield

10-Year Yield Minus 5-Year Yield


10-Year Yield Minus 2-Year Yield

10-Year Yield Minus 2-Year Yield

The first chart shows two incidents since 2010, where declines in yield reversed. However, both occasions ended when the Fed stepped on the gas.

If the Fed does so again, will the stock market respond the same way?

Feelin' lucky?

 

Back to homepage

Leave a comment

Leave a comment