Yield Curve Would Indicate Stress

We have pointed out that the “inverted yield curve!!!” hype of last summer was just that, technical sounding hyperbole for the public to get riled up about by way of the media. It’s the steepening that is going to be the problem, whether inflationary or deflationary.

So using indicators like the Gold/Silver ratio and others we marry them up to the yield curve’s condition and cobble together a working narrative.

Here is the yield curve today, steepening lately almost back to the previous highs of the year.

yield curve

yield curve

Here it is from 2019’s baseline. While no great shakes, it is steeper today than when we began the year.

yield curve

Of course, perspective is everything. That is one seriously flattening yield curve since 2015 and it has represented the continuation of the Bernanke Boom…

yield curve

…that was kicked into gear by Operation Twist, which by its very definition and stated mission dropped long-term yields relative to short-term yields, thereby hammering the curve into submission at the inflationary peak in 2011.

yield curve

So… perspective. The curve is as flat as a pancake on the big picture and policy makers and conventional market participants have been following Charlie Sheen and “duh, winning” since 2011.

But I for one pay attention when an indicator like this dives out of nowhere like it did last summer and recovers promptly, as it is doing now (ref. graph #1 above). As noted at the time, the dive to inversion felt like ending action and if so, we’ll marry the coming steepening with other indicators to see if the stress is going to be inflationary or deflationary.

And you thought this market management stuff was complicated.

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