Treasury Yield Curve Warning. Should We Pay Attention?

08/22/19 04:55:19 PM

by Matt Blackman

When the yield curve, defined by short-term rates dropping below long term, inverts, it generally indicates economic weakness. It has now been inverted for the most part since May.

Security: TNX-X
Position: N/A

Since analyzing the data for an article entitled "The Treasury Yield Curve Inverted Again - Should We Be Worried?", Federal Reserve data has continued to show an inverted yield curve. In this article we provide the most recent data.

Figure 1. Federal Reserve chart showing 10-Year Treasury Constant Maturity Yields minus 3-month Treasury Yields since 2010.

Graphic provided by: fred.stlouisfed.org.

Those tracking Treasury Yields would have witnessed that the daily 10-year Treasury yield (T10YR) first dropped below the 3-month Treasury yield (T3MO) rate on March 22, 2019 and stayed there for five days. Rates again dipped into negative territory and for all but six days in May, have remained negative (up to mid-August).

As we see in the next chart, the Federal Reserve 10-year Yield minus Fed-Funds rate also first went negative in March then turned negative again in mid-May and has remained negative since (to mid-August).

Figure 2. Federal Reserve chart showing 10-Year Treasury Constant Maturity Yields minus Fed Funds rates since 2010.

Graphic provided by: fred.stlouisfed.org.

A negative 10-year minus 3-month yield rate has proven surprisingly accurate in presaging U.S. recessions since 1960. The question is whether it will again prove prophetic. For those interested in a more detailed explanation, please refer to suggested reading below.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. Matt has earned the Chartered Market Technician (CMT) designation. Follow Matt on Twitter at www.twitter.com/RatioTrade

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Treasury Yield Curve Warning. Should We Pay Attention?

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