The data show that he has not paid in the past to give up shares when the yield curve of the Ministry of Finance is reversed, with short-term yields higher than the long-term ones. Not a good synchronization tool “While a good indicator of future financial problems, an inverted yield curve was not a very good timing tool for equity investors,” Brian Levitt, a strategic analyst at Invesco’s global market, wrote in a March 24 note. See: A key part of the Treasury’s yield curve has finally been reversed, warning of a recession – here’s what investors need to know “For example, investors who sold when the yield curve first reversed on December 14, 1988, lost a 34% yield on the S&P 500,” Levitt wrote. “Those who sold when it happened again on May 26, 1998, lost an additional 39% market share,” he said. “In fact, the median return of the S&P 500 from the date in each cycle when the yield curve reverses to the top of the market is 19%. (See the table below.) Invesco Investors certainly did not head to the hills on Tuesday. US stocks closed strong gains, supporting the recovery from the low in early March and even pushing the S&P 500 SPX, + 1.23% out of the correction of the market that entered in February. Dow Jones Industrial Average DJIA, + 0.97% jumped 338 points, or 1%, while Nasdaq Composite COMP, + 1.84% rose 1.8%. Read: The S&P 500 comes out of the correction: See what history says is happening next to the US stock index Reversals and what they mean Normally the yield curve, a line that measures returns at all lengths, has an upward slope given the time value of money. A reversal of the curve signals that investors expect long-term interest rates to be below short-term interest rates, a phenomenon that is widely seen as a sign of a possible economic downturn. But there is a lag there as well. Levitt noted that data from 1965 show that the median time between a reversal and a recession was 18 months – which corresponds to the median time between the start of a reversal and the peak of the S&P 500. In addition, the researchers argued that a persistent reversal is necessary to send a signal, something that has not yet happened, but remains widely expected. Which curve? A reversal of the 2-year TMUBMUSD02Y, 2.322% / 10-year TMUBMUSD10Y, measuring 2.410% of the yield curve has preceded all six recessions since 1978, with only one false positive, said Ross Mayfield, an investment strategy analyst at Baird D, a However, the 3-month / 10-year difference is considered uniform, albeit slightly, more reliable and was more popular among academics, said San Francisco Fed researchers. And Fed Chairman Jerome Powell earlier this month voiced a preference for a shorter-term measure that measures 3-month interest rates over expectations of 3-month 18-month interest rates in the future. The 3-month / 10-year gap, meanwhile, is far from inverted, Mayfield said. See: Stock market investors should watch this part of the yield curve for the “best key indicator of the future problem” Indeed, the discrepancy between the two carefully measured curve measurements has puzzled some market observers. “It’s remarkable that the two always went hand in hand until December 2021, when the 3m / 10s began to rise as the 2s / 10s collapsed,” Jim Reid, Deutsche Bank’s general manager, said in a note Tuesday. (see diagram below). German bank “It simply came to our notice then. Probably because of the Fed [has] “It has never been so far behind the curve as it is today,” Reid said. “If market pricing is correct, they will quickly close the gap within the next year, so it is likely in 12 months” the 3-month / 10-year measure will be stable as short-term interest rates rise as the Fed raises its benchmark interest rate. policy. The key, Mayfield wrote, is that the yield curve remains a strong indicator and at least signals a cooling economy. “Instability must remain high and the bar for investment success must be raised. “But in the end, we believe that it is worth taking the time to assimilate the bigger picture and not rely on any single indicator,” he said. In a graph: “The dam finally broke”: 10-year government yields skyrocketed to surpass the peak of the downtrend channel seen since the mid-1980s
