The US Treasury Yield Curve inverted on Friday for the first time since 2007. The talking heads were stumbling and mumbling about its meaning.
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Here is my explanation. It is a combination of an overzealous Federal Reserve AND a slowing US (and European) economy.
In short, The Federal Reserve has been raising its target rate relatively quickly (driving the 3-month Treasury bill yield up) as the 10-year Treasury note yield has been falling (particularly since November 2018). They met on Friday and passed each other. This view of the inverted Treasury yield curve is more about The Fed raising its target rate despite a declining 10-year yield.
But another interpretation of the inverted curve is it is signal of an impending recession, the same way that household net worth (as a percentage of disposable personal income) peaks then falls prior to a recession (a tip of the hat to Jesse’s Cafe Americain!)
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