Home

I Get Knocked Down but I Get Up Again - November 13, 2019

If we plot yields of Treasury bonds based on maturity, we get what’s called the yield curve. Normally, watching the yield curve is like watching grass grow.

But when it inverts—the yield on short-dated bonds exceeds those of longer-dated bonds—alarm bells go off because it historically has signaled a recession.

On average, a recession has begun 21 months after the 10-year/2-year inverts and 11 months after the 10-year/3-month inverts.

I get knocked down

 

10-year and

2-year invert

10-year and

3-month invert

Average start of next recession 21 months 11 months

Data source: St. Louis Federal Reserve Past performance is no guarantee of future performance

It’s different this time—the 4 most dangerous words in the English language

Falling yields around the world may have helped pull longer-term yields in the U.S. lower. Credit conditions at home remain easy. The Fed shifted gears and cut rates. New highs on major stock market indexes suggest investors don’t expect a near-term recession.

Investor’s corner

The yield curve has normalized, it has righted itself—it’s gotten back up again thanks to Fed rate cuts and improving sentiment.

Ultimately, a recession is inevitable. However, timing such an event is difficult.

A well-designed financial plan crafted around your specific needs is the best path to long-term financial success. If you have such a plan, we applaud you. You’ve chosen the less-traveled path.

@LWMLLC