The Inverted Yield Curve, Be Prepared

Apr. 04, 2019 3:03 PM ETSPDR S&P 500 Trust ETF (SPY)46 Comments
Christopher VanWert profile picture
Christopher VanWert


  • The U.S. Treasury Yield Curve Just Inverted for The First Time Since 2007.
  • Debate on The Implications Ranges from Meaningless to Extreme Danger.
  • Misinterpretations of this signal are discussed.
  • A Quantitive approach to Tactical Asset Allocation strategy is applied and analyzed.

On Friday, March 22nd, 2019 the United States Treasury yield curve inverted for the first time since we exited the last recession. If you are not an active or long-time investor, you might not know what the yield curve is. The market has a history with yield curve inversions. Knowing if you should do anything in response can mean the difference between being ok or losing 40%+.

There are a few articles out on Seeking Alpha and other financial analysis websites that use the average time from yield curve inversion to recession. These strategies don't consider all the possible ways the market can react. After experiencing a yield curve inversion the market has reacted quickly before and using an average can be a mistake.

First we discuss what the yield curve is and what inversion is. Then we go over the historical market impact from a yield curve inversion and discuss other conclusions. Finally, we discuss asset allocation strategy and show a model applying a 200-dma to improve performance .

“The four most expensive words in the English language are ‘this time it’s different.’” – Sir John Templeton

What is the Yield Curve?

The yield curve is a graph of the current yields of United States Treasury securities. It starts with a 1-month security and ends with a 30-year security. The three types of securities that make up the yield curve are Treasury bills (or T-Bills), Treasury Bonds (T-Bonds) and Treasury Notes (T-Notes).

Created by author using data from

Created by author using data from

The table above displays the latest data from the U.S. Treasury on the yield curve. We've highlighted where the inversion happened. We’ve also included a graph of the yield curve the day it inverted.

What causes it to invert?

Bond yields go down

This article was written by

Christopher VanWert profile picture
Masters in Finance, CFA exam I passed and a passion for Value, Quantitive Tactical Asset Allocation, Dalio's leading economic indicators and situation driven investing

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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