Yield Curve Inversion? Bah — Here’s Why I’m Not Worried

by | Apr 8, 2022 | Stocks

Everyone’s most likely seen all of the inverted yield curve headlines by now… 

The yield on the five-year Treasury note recently rose to 2.56% while the 30-year yield fell to 2.55%… This is the first time these spreads have inverted since 2006, just a couple of years before the global financial crisis. 

In the past, an inverted yield curve has proven to be a reliable indicator of a pending economic recession, generally about 18 months out…  

But what is the inverted yield curve signaling this time around? 

What Is the Inverted Yield Curve Signaling This Time? 

I’m willing to bet most people don’t know what a yield curve even is… 

It’s a graph that shows how the yields, or interest rates, on debt instruments like bonds vary in maturity dates but have the same credit quality. In an ideal setting, shorter-term bonds, like the five-year Treasury, should yield lower than the 30-year bond. 

This just makes sense if you think about it… Holding a bond for a longer period of time should give you a better payout than holding it for a shorter amount of time. 

So an inverted yield curve is when longer-term debt drops below yields on short-term debt of the same credit quality. 

This tends to happen when investors expect short-term rates to decline in the future, usually caused by weakened economic performance. 

But what is the inverted yield curve signaling right now? 

Is it always negative for stocks? Does it always portend economic doom? 

Not necessarily, and here’s why…

If you look at the past seven times the two-year and 10-year Treasury yield curve has inverted, you’ll notice that the S&P 500 jumped 11% on average just 12 months later… 

We also need to keep in mind that interest rates aren’t all that high at the moment, and the Federal Reserve has been pumping billions of dollars into the economy to keep it running without a hitch. 

So there’s a chance the market’s going to head higher, not lower… 

And there’s an even better chance that the inverted yield curve has already been priced into the market. 

Check out my short video below to learn more about what the inverted yield curve is signaling this time.

If you’re still worried about a potential recession after reading this article, don’t be. I’ll show you which sectors should move higher even if rates go up, so make sure you stick around until the very end. 

I hope this helps! 

Don’t forget to like and subscribe to our YouTube channel if you haven’t already so you can be notified as soon as we post our next video, and see what other trade opportunities we’re paying close attention to! 

P.S. On May 3, the Federal Reserve is expected to do something it hasn’t done in over two decades… 

Goldman Sachs expects it to raise interest rates by 50 basis points!

The last time the Fed did this, it sent shockwaves through the entire stock market. So I want to make sure we prepare our portfolios for what’s to come… 

Which could be one of the greatest sector rotations we’ve ever seen.

I’ve been working on something to get ready for this massive shift… And I’m going to break down the strategy and the No. 1 sector play I believe will rip once the Fed makes its move — for free! 

Do yourself a favor. 

WRITTEN BY<br>Roger Scott

WRITTEN BY
Roger Scott

What to read next

Have any questions? Contact Our Customer Service Team