Published Thu, 28 Feb 2019 13:41:08 -0500 on Seeking Alpha
The US 10 year - 3 Month yield curve is not far from inverting, and there are few indicators that give a better picture as to where we currently are in the business cycle. We see it as a crowd-sourced poll on how strong investors think economic growth is going to be, and from the looks of it many are expecting a severe slowdown or even a recession in the next year or two.
We therefore believe we are arriving at the part of the economic cycle when it's a good idea to start adding more conservative investments.
Data by YCharts
The Federal Reserve has an interesting blog post that goes into some detail on the relationship of the yield curve and recessions:
... every recession since 1957 has been preceded by a yield curve inversion. (Note that the lag between the inversion and a recession varies: With the 10-year and 1-year yields, the lag is between 8 and 19 months, with an average of about 13 months.) A common interpretation is that the yield curve measures investors’ expectations of economic growth in the current period compared with economic growth in the future. According to this interpretation, a yield curve inversion implies that investors expect current economic growth to exceed future economic growth, indicating a recession is likely.
It is therefore not easy to find assets that perform well when the yield curve inverts, given that it normally signals a slowing economy and increasing risk of recession.
In such an environment safe havens like... Read more
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