Traders Prepare for Fed Rate Rise as Global Government Bonds Drop

A stock trader speaks on phone
  • Green — periods when long (10-year) government bonds yield higher than short (2-year).
  • Red — periods when short (2-year) government bonds yield higher than long (10-year).
  • Yield curve inversion is a truly significant event. Indeed, it always points to problems in the global economy. Only once did it happen that there were problems, but the crisis didn’t occur. In other cases, she “predicted” a crisis.
  • If your investment strategy is medium-term and involves significant shifts in the portfolio every year or every 2-to 3 years, you should thoroughly study this topic; it is of decisive importance.
  • As a rule, the stock market after the inversion continues to rise for several more months. So if you are going to play timing — pay attention to it. In all analyzed cases, the sale of shares 6 months after the start of the inversion (and not immediately) gave the same or better result.
  • Recessions happen often. If your investment strategy has a long horizon, you should not be afraid of them. You have to get used to this fact. Selling shares and waiting for a couple of years without a trading position wasn’t always the best decision for a long-term investor.
  • “I saw the inversion — I sold, the end of the recession — I bought” is a terrible strategy. It worked fine only in the 2008 crisis. It would take three years. The recession ended when stocks had already risen significantly. Also, remember that we’ll learn about the recession’s end in about 5–8 months after (all macroeconomic reports signaling the end of the crisis should come out). More often than not, the stock market was already significantly higher by this point.
  • Inversions say nothing about the exact time the recession began. Absolute random took from 7 to 19 months from inversion to crisis.

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Abiodun Ajayi

Abiodun Ajayi

Abiodun Ajayi has more than 6 years of experience in Security and IT architecture. He consults and helps form strategies, perform project feasibility studies.