The Misunderstood Flattening Yield Curve

Breathless Reporting
An Inverted Yield Curve Is Just a Fever
Early Predictor
Recession Probability
A Little Time
Cleveland, San Francisco, Boca Raton, and SIC

Everybody is suddenly talking about the inverted yield curve. They’re right to do so, too, but alarm bells may be premature. Inversion is a historically reliable but early recession indicator. The yield curve isn’t saying recession is imminent, even if it were fully inverted, which it is not.

What we see now is really more of a flattened yield curve, with a smaller but still positive spread between short-term and long-term interest rates. That’s not normal, but it’s also not a recession guarantee. However, when we combine this with assorted other events, it adds to the concerns.

I’ve been writing in this letter about negative yield curve since 2000, when the inverted yield curve said there was a recession in our future and I called a bear market in equities. Ditto for 2006, though that time the yield curve inverted long before the stock market turned. Today, we’ll look at what the yield curve is really telling us.

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Now let’s dive into the Great Flattening Yield Curve and what it really means.