“Meet The New Yield Curve, Same as the Old Yield Curve”

Remember all of the recent doom and gloom predictions and market volatility when the yield curve inverted back in August? The 2 year bond yield drifted above the 10 year yield. This traditional “recession predictor” caused large selloffs in equity markets and ironically drove long term bond yields down, further aggravating the inversion. After last week’s Fed cut and other stimulus, the effect has been to push short term bond rates below the 10 year. Note that, the Fed’s recent repo market liquidity injections involve buying short term T bills, driving those yields lower. On the long end, the 10 year yield has been rising due to, wait for it, stop me if you’ve heard this before, anticipation of a trade deal between China and the US (if only they could decide where to meet and whether to call it “Phase 1”). Today’s 2 year T closed at 1.61% and the 10 year T closed at 1.82%. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners