Seeking Alpha

On Slowing Growth, A Flattening Yield Curve And Bear Market Losses

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by: Danielle Park, CFA

It's important to understand that yield curve inversion and bear markets typically begin 9 to 12 months before any recession is officially proclaimed in backward looking data. Here is my partner Cory Venable's chart showing the inversion points in the past two cycles, and where we are today.

In the last cycle, the US yield curve inverted in early 2007 as the US housing market decline was already underway. The S&P 500 peaked in October of that year, but it was not until 13 months later on December 1, 2008, that NBER and mainstream commentators declared that a recession had begun in December of 2007. By the time of that announcement, the stock and corporate bond market had already fallen 47%, and pundits were insisting, as usual, that no one could have seen the losses coming. Moves in the yield curve offer a valuable heads up for risk management.

Bloomberg has a habit of posting just a 2 or 3 minute clip of full guest interviews, which often miss the meat of the matter. Komal Sri-Kumar had many relevant observations this morning in his hour long appearance. In this 3-minute clip that was posted, he discusses how the 10 and 2 year treasury yield curve is moving toward zero, and how one more Fed hike (on May 2nd?) could be enough to invert the curve.

Komal Sri-Kumar, president and founder at Sri-Kumar Global Strategies, discusses Federal Reserve policy and recessionary warnings from the flattening yield curve.

Here is a direct video link.

Disclosure: No positions