Yield Curve Inversion Imminent (3M/10Y)
Diupdate
Well, it has happened again!
We of course see the 2yr/10yr yield curve inversion:
It has been like this for some time. However, all I hear is: “But this time it is different!”
The U.S. curve has inverted before EACH recession since 1955, with a recession following consistently between 6-24 months after. Only one time in this time-frame has this signal failed.
I am hearing now, the only yield inversion that matters is the one the fed is paying attention to.
The 3-Month/10-Year.
Let’s keep in mind the Federal Funds Rate will continue to rise, most likely at a more modest pace and maybe with less regularity.
The point being that the 3month is highly correlated to the federal funds rate:
With the federal funds rate rising, and the 10y dropping we can speculate that even this 'curve comparison of curves' will also invert.
WHAT DOES THIS MEAN TO ME?
Many banks love this environment. They enjoy the spread. When the yield curve steepens, banks borrow at lower rates and lend at higher rates. When the curve is flatter their margins are squeezed, which deters lending.
We of course see the 2yr/10yr yield curve inversion:
It has been like this for some time. However, all I hear is: “But this time it is different!”
The U.S. curve has inverted before EACH recession since 1955, with a recession following consistently between 6-24 months after. Only one time in this time-frame has this signal failed.
I am hearing now, the only yield inversion that matters is the one the fed is paying attention to.
The 3-Month/10-Year.
Let’s keep in mind the Federal Funds Rate will continue to rise, most likely at a more modest pace and maybe with less regularity.
The point being that the 3month is highly correlated to the federal funds rate:
With the federal funds rate rising, and the 10y dropping we can speculate that even this 'curve comparison of curves' will also invert.
WHAT DOES THIS MEAN TO ME?
- Inflation is certainly high, and the federal funds rate rising will reign it in with the sacrifice of jobs & growth
- The yield curve impacts businesses & consumers
- The higher borrowing cost will impact car loans, and mortgages
- We are already getting data indicating a cooling housing market
- Many Americans live off plastic credit cards. When the short-term rate rises the US Banks raise the benchmark rates for consumer loans, credit cards and other borrowing products. This increases cost for consumers.
Many banks love this environment. They enjoy the spread. When the yield curve steepens, banks borrow at lower rates and lend at higher rates. When the curve is flatter their margins are squeezed, which deters lending.
Catatan
When the 1yr is equal to the 30yr it indicates something is broken mates:Catatan
It all appears broken. Even the 3yr/5yr:Catatan
Some are blaming 'Hedge Funds' saying they are shorting bonds as they anticipate a rise in interest rates.While this strategy is a no-brainer and many have been rewarded for it. They are not the catalyst. It is a reactionary trade due to current monetary policy
Catatan
There will certainly be negative implications in equities due to this. I had advised to buy the dip in /ES at 3700 as it was oversold: 
However as was stated, profits were taken last Friday at 4100, and now is a time to get into a risk off position.
Catatan
Catatan
Eth likewise appears to be starting to roll over. Support may be within the EMA ribbon or off its old resistance level:
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