AAII Investor Update Yield Curve Inversion

Two days ago the article I've posted below was a lot more newsworthy but given the fact that the yield curve turned slightly positive on Friday, it may be old news already.  But probably not.  That's why when I saw it on Thursday, I bookmarked it since (a) it provides a pretty good explanation as to the history behind this inversion and (b) offers their own optimistic conclusion that we are not heading for recession.  It's well worth the read and there's a pretty good graph that goes with it.  We're having another chilly weekend.  March is supposed to go out like a lamb?  Says who?  The inversion curve is supposed to be a harbinger of recession?  Says who?



3-28-19 AAII Investor Update Yield Curve Inversion

	AAII Investor Update THURSDAY, MARCH 28, 2019
	Dear Member, The yield curve is back in the headlines after inverting last week. Yields on the three-month Treasury bill are higher than those of the 10-year Treasury note. A bit of background for those of you not familiar with the yield curve. The yield curve plots the interest rates for Treasuries of different maturities. Under normal circumstances, the curve is upward-sloping. The upward slope reflects demands from investors who want higher rates of return for parting with their money over longer periods of time. If you expect inflation to be higher in the future than it is now, you want your longer-dated bonds [or certificates of deposit (CDs)] to pay higher interest rates rather than shorter-term ones. Sometimes, the curve inverts. This occurs when shorter-term rates are higher than longer-term rates. This is what happened last Friday: The three-month Treasury bill closed with a yield of 2.46% whereas the 10-year note closed with a yield of 2.44%. As of yesterday’s close, the yield on the three-month bill was 2.44% versus 2.39% for the 10-year note. When I last wrote about the yield curve in early December (An Updated Look at the Yield Curve and Stock Market Volatility), the three-month note yielded 2.43% while the 10-year note yielded 2.91%. Last May, when I first discussed shorter-term and longer-term rates starting to converge (The Yield Curve Is Getting Flatter), the three-year bill yielded 1.92% and the 10-year note yielded 3.11%. As you can see, longer-term yields have fallen significantly, while shorter-term yields have stabilized after initially rising. Continue Reading » More on AAII.com Telling Curves: What Bond Yields Reveal About the Markets – In this 2003 AAII Journal article, my colleague Wayne Thorp explained the yield curve in greater detail. How to Make Money From Bonds – From our archives, this 2011 article shares strategies for constructing a bond ladder when the yield curve is ascending, flat or inverted. Highlights from this month's AAII Journal To Beat the Market, Invest Differently Than the Market – James ("Jim") O’Shaughnessy shares the lessons he’s learned over the course of his 30-year career, including the importance of not mimicking the market. Not Giving Sufficient Consideration to Sell Decisions Is Costly – Professional money managers give up between 0.5% and 1.0% of returns per year by using hands-on selling techniques instead of simply selling a randomly chosen asset from their portfolio. AAII Sentiment Survey Neutral sentiment rose to its second-highest level of the year, nearing 40%. Plus, this week's special question asked AAII members what they thought about the likelihood of interest rates being kept unchanged. More about this week’s results. This week’s results: Bullish: 33.2%, down 4.1 points Neutral: 39.6%, up 0.3 points Bearish: 27.2%, up 3.8 points Historical averages: Bullish: 38.5% Neutral: 31.0% Bearish: 30.5%