Is the Bond Market Signaling a Recession?

Inverted Yield Curve and What it May Bring

An inverted yield curve in bonds is where or when short-term bond yields exceed those of longer-term bond yields. It signals investors are worried about the economy’s long-term potential.

An example of this is a 20-year Treasury bond carrying a higher yield (or, interest rate) than a one-year.

Investors expect a larger return when they lend their money for a longer time period. This results in giving the “yield curve” its upward sloping shape.

What Happens When the Yield Curve Inverts?

When the curve inverts meaning the short-term bonds are now paying a higher yield than long-term bonds it causes a distortion, if you will, in the market.

Hard Landing vs. Soft Landing

Interest rates are affected by the decision of the Federal Reserve and where they set their interest rate marker on short-term interest rates. Their decisions have more affect on the short-term rates vs. the long-term ones.

The Fed raised rates for the first time in over 3 years  to help battle inflation which is/was at a 40-yr-high in March. Not only are more expected, but Fed Chair Powell says he may raise them at a rate of a half-basis point if need be.

The concern is for a so-called “hard landing.” A hard landing is one where the Fed raises interest rates too aggressively and accidentally triggers a recession.

The ideal situation would be one of a s-called “soft landing.”  This would be where the Fed reduces inflation, and we don’t experience an economic contraction.

Part of the Bond Market Inverted, but not the Most Watched

The most aid attention to spread in bonds that Investors pay attention to is the spread between the 2-year U.S. Treasury and the 10-year U.S. Treasury. Thus far that curve hasn’t inverted and hasn’t flashed a warning sign yet.

Do note the 5-year and 30-year U.S. Treasury yields inverted on Monday. The reason this is grabbing some attention is this hasn’t happened since 2006, before the Great Recession.

Yield curve inversions have happened multiple times over the years, but many economists I am reading say it doesn’t mean a recession is imminent.

 Sounds good to me, but I don’t want any of us caught off guard, so I bring this education to your attention.

App: Toms Option Tools

Toms Option Tools scan the markets for bullish and bearish trade opportunities using our proprietary scans and strategy algorithms. TTR Darknet finds bullish entries based on triple stack channel collisions. Money Calendar identifies seasonal patterns with at least 90% accuracy looking back 10 years. Weekly Cash Clock finds short term opportunities that last a week on average. Microcurrency Trader applies Darknet technology and moving averages to cryptocurrencies. Velocity Trader utilizes volume spike and Velocity indicators on custom stock lists. Quantum Scripts scans the markets for momentum acceleration signals and employs Quantum noise filters. Optimal Trader finds directional pre-earnings opportunities that are optimized for entry date, stock movement, and volatility surge. My Trades tracks the profit/loss of your trades, displays stock charts and risk graphs, creates new trades, and edits existing trades. Morning Report provides top 10 option rankings in 6 categories each day.

Disclaimers

Stock and options trading has large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.

This is neither an offer to buy/sell/ or recommend a particular stock or option.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.

Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.

This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.

You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.

Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.

Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.

A full disclaimer can be found here:  http://www.tomgentile.com/legal_disclaimers.html.