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Bond Market History: When The Yield Curve Un-Inverts

Published Thu, 17 Oct 2019 01:13:52 -0400 on Seeking Alpha

Introduction
After very briefly inverting in late August, the 10-year vs. 2-year treasury spread is back to normal. Further, the 10-year vs. 3-month treasury spread, which inverted briefly in March and then consistently since May, also returned to a positive slope last week. What, if anything, does that tell us about the chances or timing of a recession? That’s what I examine below, additionally examining the Fed funds vs. 2-year and 3-year spread as a proxy for the "Fed funds futures" model recently advocated by some members of the regional Fed staff.
The raw data
Regular followers know that I prefer a “just the facts, ma’am” approach, with a minimum of opinion, since when clear, the numbers tend to speak loudly for themselves. With that in mind, let me start with two graphs, showing the 10-year vs. 3-month spread (blue), 10-year vs. 2-year (3-year before 1982) (red), and 2-year minus Fed funds (3-year before 1982) (gold). The first covers the period of 1959 through 1982, and the second from 1982 to the present. As we’ll see, there are some significant differences between the two time periods:


The 3-year is used in the earlier graph because the government did not begin to issue 2-year treasuries on a monthly basis until 1974, whereas 3-year treasuries were issued for decades before. Here is a graph of each versus the Fed funds rate since 1974 to show that there is no material difference in terms of the timing of their inversions:

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Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
CORNERSTONE TOTAL RETURN FUND 11.38   0.0 0.00 2.48 22.00
ZWEIG FUND 10.98   0.0 0.00 1.44 13.14
LIBERTY ALL STAR EQUITY FUND 6.38   0.0 0.00 0.65 10.30
PROSHARES ULTRAPRO SHORT S&P 500 25.26   0.0 0.00 0.00 2.32
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST 272.32   0.0 0.00 5.67 2.10
PROSHARES ULTRASHORT S&P 500 28.97   0.0 0.00 0.00 1.97
SPDR S&P 500 ETF 301.29   0.0 0.00 5.42 1.82
POWERSHARES QQQ TRUST SERIES 1 193.23   0.0 0.00 1.49 0.78

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


Older articles featuring Cornerstone Total Return Fund (CRF):
Stocks Yielding More Than Bonds Again
A Steeper Yield Curve Should Benefit Financial Stocks
Dividend Yields Around The World
Dividends By The Numbers In October 2019
Yield Curve Disinversion
Why Does A Yield Curve Inversion Suggest A Recession?
This May Not Be Your Father's Inverted Yield Curve
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

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