SHY: Record Yield Curve Inversion Suggests Interest Rates Are Peaking

Harrison Schwartz profile picture
Harrison Schwartz


  • The bond market faced record losses as inflation spurred a rapid rise in short and long-term interest rates.
  • The US yield curve is facing immense inversion as business activity slows, suggesting a likely recessionary market dynamic in 2023.
  • A closer look at Treasury bond yields suggests the Fed funds rate should peak at 4.5% with hikes ending by six months from now.
  • The short-term Treasury bond ETF SHY has low downside risk given the interest rate outlook and may rise under a recessionary shift if inflation falters.
  • The potential for OPEC+ cuts in response to a recession creates some risk to SHY as inflation could persist even under a downturn - as seen in the early 1980s.

Fed Chair Jerome Powell Holds News Conference Following Federal Open Market Committee Meeting

Chip Somodevilla/Getty Images News

2022 was the most volatile year for the bond market in decades, with long-term bonds experiencing record losses. The chief cause of the bond market's losses is the sharp rise in inflation coming out of

Data by YCharts

Data by YCharts

This article was written by

Harrison Schwartz profile picture
Harrison is a financial analyst who has been writing on Seeking Alpha since 2018 and has closely followed the market for over a decade. He has professional experience in the private equity, real estate, and economic research industry. Harrison also has an academic background in financial econometrics, economic forecasting, and global monetary economics.

Disclosure: I/we have a beneficial long position in the shares of STIP,SHY either through stock ownership, options, or other derivatives. 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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