Wall Street Troubles
The yield curve is flattening. But the party isn't over yet
By Matt Egan and Jordan Valinsky, CNN Business
Yield curve jitters: One of Wall Street's most reliable fortunetellers is flashing ominous signals about the economic future.
The yield curve, the difference between short and long-term rates, has flattened out in recent weeks. That's typically a sign of slower growth ahead.
Worse, the gap between the two-year and 10-year Treasury yields is getting uncomfortably close to inverting. Inversion, when short-term rates are higher than long-term ones, has occurred prior to every US recession over the past 50 years. The spread hasn't been this narrow since just before the Great Recession.
Investors, nervous that the bond market is foretelling economic doom, are heading for the exits. Yield curve concerns combined with trade war fears to send the Dow plunging last week.
While the caution is understandable, some market analysts are warning investors against overreacting.
First, it's important to note that while the shorter end of the yield curve has inverted, the more reliable part of the curve has not. The gap between 2-year and 10-year Treasury yields fell below 0.10 percentage points on Tuesday before ending the week at around 0.14 percentage points.
But simply getting close doesn't count.
"It's not a dimmer switch," said Dan Suzuki, portfolio strategist at Richard Bernstein Advisors. "It works more like an on-off switch."
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That is the best cover excuse for the 'false breakout filter' - that doesn't work too well.