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Short And Sharp: Yield Curve Inversion - A False Positive?

Published Fri, 29 Mar 2019 01:18:23 -0400 on Seeking Alpha

By Seema Shah, Global Investment Strategist, Principal Global Investors
Last week, market interest rates dropped and hit the panic button. The three-month to 10-year (3m10y) portion of the U.S. treasury curve inverted for the first time since 2007. History tells us to respect the inversion, so it's understandable that investors are spooked - every U.S. recession in recent decades has been preceded by an inversion of the 3m10y yield curve. Yet, it's also true that not every inversion has been followed by a recession. Is this inversion a false positive?
It's too early to tell. Typically, an inversion would need to continue for at least a few months before investors worry. Given how overemotional the market currently is, we need more than just a few trading sessions to see if this is the real deal.
Inversion needs to be broader too. So far, it only extends to the three-year point. The 3y5y curve is flat, while the 5y30y curve has actually widened to its steepest level since 2017. Ahead of previous recessions, inversion was seen across the whole yield curve.
It also needs to be deeper. A legacy from quantitative easing is that central banks still own huge quantities of government bonds, repressing long-term yields. As such, it's easier to invert the curve, fading the recessionary signal somewhat.
And even if you want to throw all this caution to the wind, the lead times between inversion and recession have tended to be long and variable, sometimes extending to three... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CORNERSTONE TOTAL RETURN FUND 11.05   0.0 0.00 2.48 22.40
AT&T 34.82   14.6 2.38 2.04 5.80
VANGUARD EXTENDED DURATION TREASURY ETF 142.38   0.0 0.00 0.00 2.21
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 262.56   0.0 0.00 5.67 2.18
PROSHARES ULTRAPRO SHORT S&P 500 27.77   0.0 0.00 0.00 2.13
SPDR S&P 500 ETF 292.36   0.0 0.00 5.42 1.87
PROSHARES ULTRASHORT S&P 500 30.82   0.0 0.00 0.00 1.86
POWERSHARES QQQ TRUST SERIES 1 182.07   0.0 0.00 1.49 0.79
SPDR BARCLAYS CAPITAL 1-3 MONTH T-BILL ETF  

CORNERSTONE TOTAL RETURN FUND - CRF
CORNERSTONE TOTAL RETURN FUND - CRF  


Older articles featuring Cornerstone Total Return Fund (CRF):
Pay Attention To The Message The Yield Curve Is Sending
Negative-Yielding Debt: Monetary Contagion Spreads
The Dollar, High-Yield Bond Market And S&P 500 Revenue Growth
Two Yield Spreads Are Better Than One For Business Cycle Analysis
Equity CEFs: Where's The Beef In The Delaware Dividend & Income Fund?
Of Slopes And Flops: The Yield Curve Inversion
When A Yield Curve Inversion Means Recession
Ignore The Yield Curve, They Said...
Is The U.S. Yield Curve Signaling A U.S. Recession?
Weekly Edge: Yield Curve Sends Mixed Signals

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