We definitely wanted to talk about this, but it is rather complicated, so it makes our Advanced Analysis Series….Part 5
Inverted Yield Curve is a Big Deal
When short term rates are higher than long term rates, a very unusual and non sustaining event, it is called an inverted yield curve.
Here is a list of over 30 – YEP over THIRTY different articles we have written in just the last 5 years if you need a refresher…
The Un-Inversion (the actual process) or at least Narrowing of Inverted Yield Curve a BIG Deal too
Orange line below the white/zero level = Inverted
Maybe Un-invert, or for sure narrowing?
Note orange line headed towards zero or break even…..Narrowing for Sure –
In true it is different this time…. the UN-inversion is occurring because of what is called a Bear Steepener … something we have not seen in a LONG time…
Note going back all the way to the 1980’s, the most prevalent type of narrowing or Un-inversion is a Bull Steepener, or the FOMC (Federal Open Market Committee) lowering rates – noted by the above white line on the chart (2 year Treasury) marked by the arrows….
Understanding Bear Steepener
A bear steepener occurs when there’s a larger spread or difference between short-term bond rates and long-term bond rates–as long as it’s due to long-term rates rising faster than short-term rates.
What does all of this mean and why are we talking about it?
Bear Steepeners occur when Capital Market Participants begin to price in higher inflation expectations … OR maybe this time, finally accepting the FOMC is not ready to quickly lower rates! hmmmm
You see now why we went for another edition of Advanced Analysis… Stay tuned on this, we will be monitoring closely and will bring you more as this plays out!
Have a Great “Bear Steepener Reviewed” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth