The yield curve of the 3 and 5 year yield inverted yesterday. This means that you are paid a higher percentage buying bonds with a 3 year maturity date than a 5 year maturity date. Yield curve inversions literally raise red flags and mean “CAUTION AHEAD”. I for one do not believe that this is THE ONE that matters because I look at the 2 and 10 year yield curve, but it all has to start somewhere. The 3-5 year inverted in 2005 which was some 2+ years before the recession in 2007 so this clearly does not mean the recession is starting “right now”.

 

However, with that said, if this does continue to go the way that I beleive it is going you are going to see more inversion and the 10 and 2 (this chart shows 10 and 1 but very similar) will invert and this WILL PRECEDE A RECESSION. I know there are many people out there that do not like charts, and lines, and shaded areas, blah blah blah. Those are the people with an AGENDA and ignoring the DATA. So don’t listen to them. It is VERY CLEAR when we have an inversion like the ones in the chart below, a recession IS COMING. This time WILL NOT BE DIFFERENT especially in this late cycle environment we are in. This will need to be constantly monitored over the coming 18 months. Risk happens fast, and then all at once.

 

Caution is now warranted going forward and the slightest move in policy mistake from the Federal Reserve may have a great impact on how this curve continues to shape out. I have been saying the QT and the raising rates has been TOO MUCH for the last 9 months and now we are seeing the signs of it.

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