Market Commentary

Red Flags for the Economy

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The yield curve has become flat. In the past, if it inverts that has been a major red flag for the economy, meaning a recession is not far behind. Generally, an inverted yield curve is when short term treasury bonds pay higher yields than long term bonds. The most common period used is comparing a two year with the ten year bond. When this happens it is considered a predictor of a recession. Today the 2 year bond yields 2.31% and the ten year is at 2.44%.So it is not inverted.

However, it is inverted if you use the one-month, two-month, three-month, six-month and one-year bonds. The one-year bond pays 2.45%; one basis point higher than the 10-year bond.

We are always heading into the next recession after the previous one and no one can predict when it will start within a relatively short time frame.  However, we are moving closer and as the yield curve suggests it is closer than most people believe.

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