Home Guides & Resources chevron_right Investing Bond Investors Steepen Yield-Curve Inversion Published June 3, 2019 Even as the economy continues to demonstrate strength with a fully employed workforce and robust corporate earnings, some investors have been playing it safe by shifting assets into bondsA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates.. U.S. Treasurys, the go-to in times of uncertainty, have benefited the most and as prices have risen, yieldsYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. have fallen. The benchmark 10-year Treasury’s yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. has again dropped below the 3-month Treasury bill’s yield—a so-called “inverted yield curve” where shorter-maturity bonds sport higher yields than their longer-maturity counterparts. With the 3-month Treasury out-yielding the 10-year by 0.11% this week, the steepest inversion since 2007, you may have heard one of the many pundits rushing to proclaim a recession is on the horizon. The inverted yield curve does have predictive qualities, having preceded the last seven recessions, so it should not be easily dismissed. However, the inverted yield curve is not a Swiss watch you can set your recession timing to. On average, there has been a lag of more than 12 months between the yield curve’s inversion and the start of a recession—and even then, we often don’t know that a recession has started for several more months. Keep in mind that while predicting the last seven recessions sounds impressive, it is a very small sample size. Additionally, an inverted yield curve doesn’t tell us the length or severity of the next recession, nor how the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market will perform before or during it. We are keeping a close watch on the yield curve. But we view it as one factor among many that we consider when it comes to evaluating the state of the economy, the stock and bond markets and the composition of our clients’ investment portfolios. Please note: This update was prepared on Friday, May 31, 2019, prior to the market’s close. This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged. Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be seen as a recommendation to buy, sell or hold any of them. The Adviser You Can Talk To Podcast is a trademark of Adviser Investments, LLC. Registration Pending. © 2019 Adviser Investments, LLC. All Rights Reserved. Tags: bondsstock market