27 Dec 05: Yield Curve inverts for first time since 2000
The treasury yield curve inverted last night for the first time in five years. I’ll get a little more into the mechanics of it in a separate article, but put simply, the 2-year note was paying a higher yield than the 10-year note. Think about it for a moment. What if your bank offered you 5.25% on a 5-year CD, but only 5% on a 10-year CD. It would be pretty obvious that something was amiss.
Treasury yields aren’t quite as simple as CD yields, but the inversion is still a sign that something’s not as it should be. It’s the free market’s bright red arrow pointing to the fact that our economy is not just the foaming good news we see on the box.
If you follow market news regularly, you’ll quickly notice that there seems to be no such thing as bad news. Take the following Reuters article, for example.
NEW YORK (Reuters) - An inverted yield curve in the U.S. Treasury bond market, historically a harbinger of looming recession, is no longer the curse that analysts fear and some say its impact on the dollar could even be positive. [my emphasis]
What was bad is good, and what was good is still good! As the Church Lady used to say, “How conveeenient!”
All baloney, of course. The culmination of excess money supply, historic levels of personal debt, and the real estate bubble is likely to be very painful, and for those who keep clicking their heels and ignoring the flashing signals, quite a rude awakening.