Market Commentary 04/04/23

The yield curve is a fundamental tool in finance that plots the interest rate on bonds relative to time to maturity. Most of the time, the yield curve slopes upward, indicating that long-term bonds pay higher interest rates than short-term bonds. The shape of the yield curve is closely monitored by investors and economists, as it can provide insights into future economic conditions. Historically, yield curve inversion between the 10-year and 2-year Treasury rates has been a reliable indicator of an upcoming recession. We have commented on this topic several times over the years and wanted to discuss this again.

An inverted yield curve occurs when the yields on short-term bonds exceed those of long-term bonds. Typically, this happens when investors are pessimistic about the economy’s prospects over the long term, leading to a demand for longer-term bonds which drive their yields down. This demand can be due to a variety of factors, including concerns about future inflation, geopolitical uncertainty, or a lack of confidence in the stock market. The recent yield curve inversion was presumably the result of rising inflation and the Feds response by increasing short term interest rates. There is a lag effect to these actions, as it takes time for inflation and higher rates to impact the economy and see the resulting slowdown. The current inversion in the yield curve may be the result of investor concern that the Fed will raise rates too fast or too far thus having negative economic implications.

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Important Disclosures: The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The information contained herein is based on technical and/or fundamental market analysis and may be based on data obtained from recognizable statistical services, issuer reports or communications or other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to its accuracy or completeness. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. CAR-0423-0050

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