{"id":70661,"date":"2023-10-09T16:13:11","date_gmt":"2023-10-09T20:13:11","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/what-an-un-inverted-yield-curve-means-for-the-stock-market\/"},"modified":"2023-10-09T16:13:13","modified_gmt":"2023-10-09T20:13:13","slug":"what-an-un-inverted-yield-curve-means-for-the-stock-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=70661","title":{"rendered":"What an &#8216;Un-Inverted&#8217; Yield Curve Means for the Stock Market"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-BAR-0000763174\">\n<div data-layout=\"wrap\n              \" data-layout-mobile=\"\" class=\"\n        media-object\n        type-InsetMediaIllustration\n          wrap\n  article__inset\n        article__inset--type-InsetMediaIllustration\n          article__inset--wrap\n    article__inset--lead\n  \"><\/p>\n<p>        <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-wrap\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>One of Wall Street\u2019s favorite recession predictors\u2014an inverted yield curve\u2014is getting less inverted, but that isn\u2019t all good news for investors. How the curve un-inverts matters, too.<\/p>\n<p>Since July 2022, the chart plotting interest rates on U.S. Treasuries of different maturities has been downward sloping\u2014with yields on shorter-term bills and notes exceeding those on longer-term securities\u2014known as an inversion of the yield curve. <\/p>\n<div class=\"paywall\">\n<p>That is the opposite of the normal pattern. There is generally more inflation and interest-rate uncertainty over the long term than in the short term, so bond investors tend to demand a higher yield to lend for longer.<\/p>\n<p>But over the past 15 months, investors have been pricing in higher interest rates and economic risk in the near term, lifting yields on the short end of the curve above the long end. That dynamic has historically been a reliable recession indicator\u2014an inverted yield curve has preceded every U.S. recession since the 1950s. According to Dow Jones Market Data, inversions of the<br \/>\n        2-year<br \/>\n       and<br \/>\n        10-year yields<br \/>\n      \u2014the most commonly cited pair\u2014have preceded recessions by as little as seven months or as much as two years.<\/p>\n<p>In early July, the 2-year yield exceeded the 10-year yield by nearly 1.1 percentage points. It was the largest spread between the two yields since early March, in the wake of the failure of Silicon Valley Bank, and close to levels last seen in the 1970s and 1980s.<\/p>\n<p>Today that spread is down to 0.29 points. The 2-year yields 5.07% and the 10-year yields 4.78%. Elsewhere, the curve has already un-inverted: The yield on the 30-year Treasury bond is 4.94%, above the 3-, 5-, and 10-year yields. The six-month Treasury bill now has the highest yield on the curve, at 5.58%.\u00a0<\/p>\n<p>It matters how the yield curve un-inverts. That can happen in two ways, after all\u2014either the 2-year yield <em>falls<\/em> more quickly than the 10-year yield, or the 10-year yield <em>rises<\/em> faster than the 2-year yield. Either pattern results in a steeper yield curve. The former dynamic is called a bull steepener, while the latter is more ominously named a bear steepener.<\/p>\n<p>In a bull steepener scenario, markets are typically pricing in imminent interest-rate cuts by the Fed, prompting a sharp fall in near-term yields. That is often right before a recession.<\/p>\n<p>By contrast, today\u2019s bear steepener is driven by continued economic and labor-market resilience\u2014pushing up longer-term yields as investors price in a higher-for-longer interest rate posture by the Federal Reserve. (The Fed\u2019s ongoing quantitative tightening and a flood of Treasury issuance have also played a role.) That means more restrictive financial conditions, higher interest rates for borrowers, and more competition for other assets such as<br \/>\n        stocks<span>.<\/span><br \/>\n       Those, in turn, raise the odds of a weaker labor market and recession.<\/p>\n<p>\u201cThe overall effect of this bear steepening will be to jack up the net interest expenses of U.S. non-financial firms,\u201d wrote Tan Kai Xian, U.S. analyst at Gavekal Research. \u201cAt such a cyclical juncture, higher net interest expenses will weigh on U.S. corporate profits, spurring bottom-line-focused firms to fire workers.\u201d<\/p>\n<p>Individuals and businesses tend to borrow over the long term\u2014think of a 30-year mortgage or a 10-year corporate bond\u2014while holding their cash in short-term instruments. So a bear steepening means their interest expenses on borrowings rise faster than their returns on cash equivalents, increasing net interest expenses. That is a drag on the economy.<\/p>\n<p>Periods of bear steepening are much rarer than a bull steepening. <\/p>\n<p>\u201cMost often, [bear steepenings] occur at the start of an economic cycle, as growth is picking up,\u201d wrote Jonas Goltermann, deputy chief markets economist at Capital Economics. \u201cWhen the yield curve bear steepens while already inverted (as it is now), it is usually near, or at, the start of a recession. Generally, that has been followed by significant falls in long-term government bond yields, as well as equity indices.\u201d<\/p>\n<p>In other words, this bear steepener may still become a bull steepener, should a recession scare increase Wall Street\u2019s appetite for long-term Treasuries and prompt the Fed to cut short-term rates. That won\u2019t happen without some economic and<br \/>\n        stock market<br \/>\n       pain.<\/p>\n<p>Write to Nicholas Jasinski at nicholas.jasinski@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/articles\/stock-market-treasury-yield-curve-inversion-f366e665?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>One of Wall Street\u2019s favorite recession predictors\u2014an inverted yield curve\u2014is getting less inverted, but that isn\u2019t all good news for investors. How the curve un-inverts matters, too. Since July 2022, the chart plotting interest rates on U.S. Treasuries of different maturities has been downward sloping\u2014with yields on shorter-term bills and notes exceeding those on longer-term [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":70662,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-70661","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What an &#039;Un-Inverted&#039; Yield Curve Means for the Stock Market | iFintechWorld<\/title>\n<meta name=\"description\" content=\"One of Wall Street\u2019s favorite recession predictors\u2014an inverted yield curve\u2014is getting less inverted, but that isn\u2019t all good news for investors. 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