Only a few ticks away from an inverted Yield Curve
With the free bond market driving up 2 year yields while the Fed holds out from going hawkish (hawk talk is cheap, actions are not) it is a confusing backdrop because…
…inflation hype is everywhere, a curve flattener is not usually consistent with a big inflationary backdrop, and with respect to commodities and inflation…
But there do remain some breaking mechanisms, like said Yield Curve above, like potential limit areas in bond yields, like divergences aplenty elsewhere. Yet, experienced players will recall that once said hype train gets rolling and even after commodity/inflation gurus start super-cycling you to death the thing can roll on indefinitely before the bubble pops.
The Yield Curve inversion in 2019 was just a tick into sub-zero. Past inversions have gone deeper than that before turning up and signaling an economic bust, among other things (the 2020-2021 steepener was purely inflationary). So maybe today’s Yield Curve has some unfinished downside flattening business to see to. Now that I think about it, was that secondary dip in early 2020 going to keep diving to a deeper inversion before this guy got involved and drove the economy into a flash bust (against which the Fed inflated like all get out)?
It actually makes some sense that 2 years later the curve might be conducting some unfinished business. It is really remarkable how poetic markets can be. Regardless, it’s good to keep in mind that while the media will tout the inversion as a big warning, it’s when it starts to steepen again that the actionable warning may be sounded. And this (coming) time I doubt the steepener will be inflationary.
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