Finally our conclusion to what we have all been waiting for …. The Predictive Value of our discussion …
So we know the FOMC fiddles with rates…
The FOMC Federal Open Market Committee raising the totally controlled short end … recall, they do not totally control the longer end… capital market participants do!

This following Chart is our sizzle….
This is the difference of the 2 year yield and the 10 year yield for about 5-6 decades…
When the 2 year yield is BELOW the 10 year yield the line is plotted above zero … think 1% less 3%, would give you a data point of 2 on this chart….
When the short end of the curve is ABOVE the long end — totally backwards to all logic, the plot on the graph would be BELOW zero… areas which we have circled in red…
Grey area are recessions …. just behind the inversions —
Take a moment and check this chart out…

Here is an easier to see chart from 1999 to present–

Why don’t they stop raising?
They cannot, it is their mandate – keep inflation under control …. raising rates is their main control mechanism.
Also, it is beyond their control as investors actually pile into the long end of the curve dropping it’s rate while the FOMC raises, in anticipation of the next recession…
Creating the Inverted Yield Curve!
In Never go all in or All out fashion, if the curve inverts we do not pack up our things and leave …. BUT caution is definitely advised.
There will be excuses …
- it’s different this time …
- rates are un-natural …
- rates are low …
Maybe- worth heeding with a track record shown above….
We will keep you posted!
Hope you enjoyed the Series … Quick links – Part 1, Part 2, Part 3, Part 4
Have a Great “Not Inverted Yield Curve” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
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Calls of an Inverted Yield Curve – Premature SO FAR –
This week a funny thing happened … on the yield curve that is, garnering a lot of attention. Those following our writings, here, here, and here, know we are watching for an inverted yield curve since it has a good predictive nature for recessions – a topic for another discussion. Heck, even Kent Smetters, the Wharton co-host professor mentioned the yield curve had inverted.
Inverted Yield Curve? Kinda!
Here is a good picture of a normal yield curve
Inversion occurs when the short term rate goes higher than the long term rate i.e. the 2 year greater than the 10 or even more clearly, the 90 day rate greater than the 10 year…
What happened this week were the 2 and 5 year yields, slightly inverting –
Does this count?
Maybe? BUT the real predictability is from the afore mentioned short and long, not short and slightly longer short…
Here is the 2 and 10’s, followed by the 90 day and 10’s
It may invert, and we will let you know when it happens, if it happens, but for now, in our minds ….
No inversion yet, but we are watching close!
Have a Great “Not Inverted Yet” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
jkfinancialinc
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Posted in General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments
Tagged Interest Rates, Inverted Yield Curve, Yield Curve