- Your Team
- Our Clients
- Working With Us
- OUR BOOK
- Client Access
Our markets experienced a tough day on Wednesday, as the yield on the 10-year Treasury Bond broke below the 2-year rate, an odd bond market phenomenon that has been a reliable indicator for economic recessions. The yield on the 30-year Treasury Bond closed at a record low on Wednesday. This scenario is called an Inverted Yield Curve. A Treasury Bond is much like a Certificate of Deposit (CD), except it is issued by our Federal Bank/Treasury instead of a community bank. It provides the promise of a fixed interest rate and is available in 2-year, 10-year and 30-year duration.
There have been five yield curve inversions of the 2-year and 10-year yields since 1978 and all were precursors to recessions, but there is a significant lag. Recessions occurred, on average, 22 months after the inversion. And the DOW enjoyed average returns of 15% 18 months after an inversion.
The last time this key part of the yield curve inverted was in December 2005, two years before our recession.
As always, please call us if you have any questions.