The last time I wrote about the U.S. yield curve was way back in July. Oddly, I did not get any emails from readers or twitter followers.
I thought my conclusion from the charts was pretty unique - "You just read that the two-year could go to a 2.90% and the ten-year to a 2.50% which would mean the curve could invert! Don't panic just yet as Point and Figure charts ignore time and like everything else in technical analysis the best we can do is be a wind-sock and not a crystal ball. With big unknowns like tariffs and oil prices and what they could mean for global growth who knows?"
Six months later and now everyone is worried about the yield curve inverting and the implied risk that 2019 could bring a recession.
With 20-20 hindsight we know that the 2-year yield touched 2.97% in early November and today we can see that the 10-year yield has weakened to a 2.98%. Will the 10-year decline to a 2.50% - I am not so sure today.
Let's start with a basic definition of the yield curve from Bloomberg and some new charts to see if they still suggest inversion. On Bloomberg the yield curve is defined as "a chart consisting of the yield of bonds of the same quality but different maturities. This can be used as a gauge to evaluate the future of the interest rates."
Simple. The devil is in the details.
In this bar chart of the 2-year U.S. Treasury yield, below, we can see that the 2-year yield rose sharply this year but a steep uptrend line has been broken.
In the lower panel is the 12-week price momentum study showing lower highs or weaker momentum readings. The difference of the trend of momentum to the trend of yields is a bearish divergence and suggests that the yield of the 2-year could decline further in the weeks ahead.
In this three-year weekly bar chart of the yield of the 10-year Treasury we can see that the uptrend line has not been broken. Two horizontal lines suggest a trading range for the 10-year with the 2.80% a potential "support" area.
Bottom line: Part of the U.S. yield curve has inverted and the 2-10 spread is flat. With a Google search of the phrase "yield curve inversion" showing about 16,800,000 citations with a picture of Jeffrey Gundlach right below it we may have reached a turning point. Or at least a point of too much exposure.