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Is A Flat Yield Curve A Harbinger Of Bad News?

Published Thu, 06 Dec 2018 11:11:41 -0500 on Seeking Alpha

Bond King Jeff Grundlach. Source: Barron's
On the surface the U.S. economy appears to be strong. The unemployment remains well below 5% (considered full employment). Average hourly wage growth for the month of October was over 3%, implying workers could switch jobs or demand higher wages from employers for staying put. However, the yield curve could be painting a much different picture. The spread between the 3-year and 5-year Treasury yields inverted earlier this week for the first time in over a decade:
For yield-curve watchers, the spread between 3- and 5-year Treasury yields inverted Monday, dropping to negative 0.6 basis points - its first time since 2007. To be sure, the 3/5 spread isn't the most widely watched measure. That's more likely to be the 2/10.
“The outright inversion could be reflective of the market pricing in some cuts starting in 2020, which may be helping the 5-year tenor outperform slightly,” said TD Securities rates strategist Gennadiy Goldberg.
Some suggested the inversion didn't necessarily foreshadow anything. After all, it is a minor part of the yield curve. The most watched is the spread between the 2-year and 10-year Treasuries. The 2-year yield is 2.83% and the 10-year is at 2.99% - a 15 basis point spread. It's also very flat, and dangerously close to becoming inverted.
Bond King Jeffrey Gundlach, CEO of Doubleline Capital, suggested the bond market signaled a weak economy:
Jeffrey Gundlach, chief... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 258.81   0.0 0.00 0.00 3.24
PROSHARES ULTRAPRO SHORT S&P 500 33.63   0.0 0.00 0.00 2.67
THOR INDUSTRIES 69.45   11.6 5.97 0.00 2.28
SPDR S&P 500 ETF 277.85   0.0 0.00 0.00 2.07
PROSHARES ULTRASHORT S&P 500 34.70   0.0 0.00 0.00 2.03
POWERSHARES QQQ TRUST SERIES 1 172.28   0.0 0.00 1.68 0.98
LCI INDUSTRIES 131.65   0.0 0.00 0.00 0.00
VANGUARD TOTAL BOND MARKET ETF  

SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA  


Older articles featuring Spdr Dow Jones Industrial Average Etf Trust (DIA):
January 2019 Data Update 8: Dividends And Buybacks - Fact And Fiction
February Yield Curve Update: The One-Year Spike
The Modified Yield Curve And Growth Prospects Through 2019
Using The Yield Curve As A Recession Indicator
Lions And Tigers And Yield Curve Inversions
The Last Time The Yield Curve Inverted, Stocks Soared 30%
Ignore The Highly Anticipated Yield Curve Inversion
January Yield Curve Update: Inching Closer
2019 Market Outlook: A Look At Valuations And The Yield Curve
Dividend Sensei Positions For 2019: What You Should Expect Next Year

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