The Treasury yield curve inverted for the first time since the last crisis Friday, triggering the first reliable market signal of an impending recession and rate-cutting cycle. The gap between the three-month and 10-year yields vanished as a surge of buying pushed the latter to a 14-month low of 2.416 percent. Inversion is considered a reliable harbinger of recession in the U.S., within roughly the next 18 months.
This is a well rehearsed media spectacle that leads to massive selloffs as investors run for the exits. But there’s really no need for it, not if you’re a seasoned investor who understands a yield inversion doesn’t mean the end of the world. It’s an important indicator that happens to precede recessions, alerting investors of the risks ahead so they can take the necessary precautions.
Ten years into a historic expansion, it’s easy to see why we became so complacent. Stocks kept going higher while the rest of the world imploded in real time. That’s because we were betting everything on the Fed put. But the gig is finally up.