Pick a yield curve, any curve

Financial media are excitedly reporting about the US10Y minus US05Y spread inverting.

Firstly, they’re grasping at straws seeking out any yield curve combination which may have inverted, albeit for a 2 hour period.

Secondly, if we gave them some credence for this one, inversions of this curve have not been an accurate timing signal of poorer returns ahead for the stockmarket.

Quite the contrary in most cases.

If ‘they’ choose to cite the 2000 period (as circled in the chart below), that also remains a long bow to draw.

It took the stock market 9 months to start turning lower after the US10-US5 curve initially inverted and to boot, it required some serious negative inverting action.

Today’s sojourn hardly counts.

I prefer to watch and rely on the US10Y minus US02Y yield curve, which featured in a note from earlier this week.

March 17, 2022

by Rob Zdravevski

rob@kariasset.com.au