Intentional Inversions

In a report sent out to our mini-institutional subscribers on June 3rd we speculated that if the Fed raised rates in June and treasury yields remained near current levels, they would be intentionally inverting the spread between their key short-term rate (Fed Funds) and the Ten-Year Treasury.

We also highlighted the following timeline which plots occurrences of intentional inversions as well as recessions. As it details, intentional inversions have been even more reliable predictors of recessions than market influenced inversions. In five out of six of the periods where the Fed raised rates above the prevailing ten-year yield, the economy went into a recession within the next eighteen months, and in the other period the economy was already in what was its longest recession of the last thirty-five years.

Comments

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This makes sense. It also is backed up by looking at the ECRI weekly leading index of US economic growth. As of today, in graphing the numbers, it has broken an uptrend line from '02. It has also formed a double top. BB will be cutting rates in the not too distant future. I believe long rates have peaked. Cue the switch from bonds to equities.