SPX: US10Y-US02Y Yield Curve Inversion Giving A Market Signal

2022년 4월 1일

By now if you've been paying attention you've heard about the Yield's inverting and why it could mean imminent recession. I am not here to argue one way or the other, just going to look at the data objectively and hopefully use it to gauge where we can be headed over the next few quarters.

I will let the chart do most of the speaking but I will give you a few basic statistics.

I have taken each duration it took from the exact point of inversion to exactly when it led to a Correction or Recession. The days were:
~21 Days: (19%) Correction
~203 Days: (-49%) Recession
~98 Days: (-8%) Correction
~609 Days: (-57%) Recession
~168 Days: (-32%) Mini-Recession *I count this one as an outlier since Covid was the catalyst*

If we take the Mean of this data it suggests that between (Now - 220 Days) from now, we very well could be entering a recession. The chances significantly increased once yields were inverted.

Here is a previous post in which I analyzed previous cycles of Bond Yields. Notice how fast Yields have tightened in comparison to past cycles.

The pace at which this cycle was elevated was much more rapid than in previous cycles and the FED has never had to tighten policy into such a slowing economy so it is reasonable to assume the end will approach fast as well.

FED Fund Rates are priced in at 2.5% as of right now. They also plan to QT and decrease their balance sheet.

No matter what your perspective on the FED's Rate Hikes, whether it be 3-10+ hikes, they are only going to keep raising rates until the market gives out. Once it does, they will stop raising rates.

So objectively, no matter the scenario, the outcome is very likely the same.

Most of all, in times like these, stay objective. (IF; THEN) is your best friend in times like these. Adapt and let the market speak for you. Don't hold on to bias, or what you think is going to happen with the market. The market doesn't care.