Posted on 03/02/2022 3:02:15 PM PST by nickcarraway
If the U.S. yield curve inverts in 2022, it may signal that a recession is coming and that can mean poor returns for stocks. Currently, the U.S. yield curve still has an upward slope to it, but it is flattening in places, largely because government bond yields between 3 months and 5 years out have risen meaningfully, while the yield on the 10 year and longer durations have risen at a slower rate. This is, in part, because many see the Fed raising rates in 2022. The result is a generally flatter yield curve, which could mean that inversion is coming.
Research On Yield Curve Inversion The ability of the U.S. yield curve to predict recessions is reasonably well studied by academics. This paper find that the term spread, or the difference between 3-month and 10-year U.S. Treasury yields has historically been predictive of future U.S. economic growth.
Hence, even if the yield curve does not invert, maybe the current flattening is a sign that slower growth may be on the horizon.
Perhaps even more powerfully, this paper shows that the U.S. yield curve inverting has predicted all but one of recent U.S. recessions since the 1970s, and without any obvious false positives. The exception was the recession of 1990, though the yield curve was still relatively flat before the recession. The model appears to work for many countries beyond the U.S. too, with varying degrees of accuracy.
There are however, some important caveats. The first is perhaps that the slope of the yield curve is now a very well-monitored indicator. That may reduce its forecasting power. For example if the Fed is basing some of its predictions, and indeed policy actions, off the shape of the yield curve, then the metric may start to change economic policy in ways
(Excerpt) Read more at forbes.com ...
I am pretty sure we left growth behind in 2021 (maybe 2020).
We’ve been i recession territory for at least a year.
The Biden administration has been hiding it rather well.
Two years to flatten the curve.
Close eyes and buy buy buy. FED will not stop printing. They simply can not stop. They have tiger by the tail. If they raise interest rates, the bonds will require much higher cost to pay interest. Inflation is the only choice left.
Good one.
Low interest rates are a helluva. What are you going to do when you have to push a rope?
The poor returns are already happening.
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