The yield curve on the 2-year treasury continued its ascent reaching a decade high of 2.41% on April 17. Meanwhile, the 10-year note closed at 2.82%, leaving a gap of just 41pbs - the narrowest since 2007.
This means the yield curve has flattened – imagine years on the (horizontal) x-axis and rates on the (vertical) y-axis.
If the 2-year and the 10-year rate were the same, we’d have a flat curve. And, if the 10-year rate was lower than the 2-year, we’d have a dreaded inverted yield curve.
Normally investors expect higher interest for tying up money for longer. Therefore, normally, the yield curve is upward sloping – that is the opposite of inverted.
An inverted yield curve is worrisome because it indicates investors have lost confidence in the economy. Inverted Treasury yield curves “predicted” the last seven recessions, including the “great recession.”
That said, since 1980, of eight yield-curve inversions only four predicted recession.
Data shows relatively severe inversions have foreshadowed recession.
While the curve has recently flattened - it has not inverted - not even mildly.
Weekly Update through April 20, 2018 The S&P 500 gained 55bps, even as the Dow Jones added 46bps, the Russell 2000 gained 95bps and the Nasdaq added 56bps.
As for US bonds, they lost -62bps.
Globally, the MSCI World Index gained 57bps and the Barclays Global Aggregate Bond Index lost -71bps.
The Euro Stoxx 50 added 1.44% in local-currency (Euro) and 1.07% in USD.
Meanwhile, the Topix gained 1.26% in local-currency (Yen) and 1.16% in USD.
