Reclaiming Common Sense

The Daily 2-Year and 10-Year Graphs Did not Invert on a Monthly Basis


The two bond yields approached each other. They paralleled each other. They did not cross. They did not invert. 

The Daily 2-Year and 10-Year Graphs inverted for one day - August 29, 2019


Remember that the first "2-10 Inversion" article detailed how the inversion had to last for months, not moments. One day is not a month. The ten year was 1.62% on August 22nd when the two year was 1.61%. The ten year was 1.50% on August 29th when the two year was 1.53%.


The data is fairly clear. The 2-10 bond inversion is not a great indicator of a potential recession. The data for the monthly rates of the two and ten year bonds have not inverted for an entire month since the Great Recession. Workers and jobs are the best indicator of a recession. Gross Domestic Product is the "official" measure of a recession and it takes six months, at a minimum, for that to be identified. The yield curves have to invert for months, not moments, in order to have any predictive qualities for an oncoming recession. We are not in a recession.


It's the Economy.

The Daily 2-Year and 10-Year Graphs Look Similar to the Monthly lines -

Just more spikes


If you look at the daily rate curve or the monthly rate curve you will see that here is a correlation with the dropping 2-year yield and the start of a recession. Is correlation causation? No. The recessions do not last as long as the two year yield spent dropping. If you look at it with an open mind you will see that employment has increased as the bond yields have decreased.

What Bond Yield Inversion?

A Yield inversion has to last Months not Moments


This column published an article two months ago titled "2-10 Rate Inversion is not the best predictor of a recession."  The above graph came from that article. The recessions are shaded in gray.  If you take a cursory look at he graph it looks like there were multiple rate inversions of the 2-year and 10-year bond rate. There were not as many as it appears. There wasn't even one during August or September this year.