Recession

On the Horizon?

The Flattening Yield Curve Just Produced Its First Inversions

The spread between 3- and 5-year yields fell to negative 1.4 basis points Monday, dropping below zero for the first time since 2007, and the 2- to 5-year gap soon followed. The 2- to 10-year is more closely watched as a potential indicator of pending recessions. But Monday’s move could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching. 

While the yields on shorter-maturities fell on Tuesday during Asian hours, the spread between 3-, 5-year yields remained stable. Longer-maturity bonds rallied sharply, flattening the long-end of the yield curve. The U.S. 10-year slipped another 3 basis points to 2.94 percent, dropping below the 200-day moving average for the first time this year. 

The spread between 2- and 10-year rates -- arguably the most closely watched section of the curve -- dwindled below 15 basis points, the flattest since 2007.

DYI:  So far DYI’s recession indicators all remain for ongoing growth in the economy.  However, this slight inversion though not enough to predict a recession it is enough to keep us on our toes for that possibility.  The economy bottomed out in 2009 which means this economic rebound is now long in the tooth.  Add on an insanely overvalue stock and junk bond market plus a jacked up real estate market an economic falloff these asset categories are in for a very big drop.

DYI