The Uninverted Yield Curve

By Colin Twiggs
January 18, 2019 12:30 a.m. EDT (4:30 p.m. AEDT)

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Chart for the Week

I have read several commentators proclaiming that the crisis is over and the stock market and US economy are back on track for solid growth.

While the US yield curve has uninverted in the past and yet a recession has still come along, the uninversion seen in recent months coming after such a shallow and short-lived inversion provides confidence that the inversion seen last year gave a false signal.... (Shane Oliver at AMP)
Treasury 10 Year-3 Month Yield Differential

Yield curve inversions seldom last long. For one simple reason. The Fed fires up the printing press to reduce short-term interest rates and boost the economy. The yield curve uninverted before each of the last three recessions and this time looks no different.

The Long Game

We play the long game — reducing exposure to equities when market risks are high and staying on the defensive until normality is restored — even if this means sitting on cash while equities rise. The only alternative, unless you trust your ability to accurately identify exact market tops and bottoms, is to hang on to your positions no matter what happens. But there are few individuals who can withstand the stress and make rational decisions during a major market draw-down.

Updates for Market Analysis Subscribers

Disclaimer

Colin Twiggs is director of The Patient Investor Pty Ltd, an Authorised Representative (no. 1256439) of MoneySherpa Pty Limited which holds Australian Financial Services Licence No. 451289.

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