Bravos Research: 3 More Months Until it Begins…
With the start of an interest rate cut cycle, the bond market has started to readjust to lowering rates. Part of this process is the overall yield curve un-inverting. That’s where longer-dated bonds now start to have a higher yield than shorter-dated ones.
Typically, an un-inverted yield curve has occurred either during or just ahead of a recession. Yes, this time could be different due to pandemic-related polices being unwound.
However, as one of the strongest macroeconomic indicators, with a flawless record, it shouldn’t be ignored. With the 10-year and 2-year U.S. Treasury bond yield in particular un-inverting now, it’s a sign of danger ahead.
Bond yields are still somewhat volatile. They’ve even risen somewhat since the Fed cut interest rates. That’s because last week’s unemployment data indicated a strong labor market.
Even with that short-term move, investors likely have just a few more months left before conditions deteriorate.
Yes, GDP growth remains healthy too, in line with the labor market. That suggests that we still have some time left for markets to peak.
Each yield curve un-inversion is different. And the start of a recession as the yield curve un-inverts can change. With the curve entering a danger zone, investors may want to lighten up on their most aggressive trades going into the end of 2024.