U.S. yield curve to invert in Mid-2019, Morgan Stanley says

Bloomberg/Chris Anstey/7-11-2018

“The Federal Reserve next March will probably map out an end to the contraction in its balance sheet, helping support longer-dated bond yields, which will drop below those on shorter-dated notes by the middle of 2019, according to Morgan Stanley.”

USAGOLD note:  The question routinely overlooked in the discussions about the yield curve is why the longer-dated bonds yields are stuck in the first place.  Who’s the buyer keeping yields artificially low? Or is it a lack of supply?  And while that influence remains in place, whatever is causing it, is the idea that an inverted yield curve signals a recession subverted by some hidden and unexplained circumstance?

From a CNBC article two days ago: “One thing we have to reconcile is what’s unique about this environment is we just went through a long period of QE [quantitative easing] to keep rates lower than normally would be the case. Most estimates for QE would argue the curve is probably on the order of about 40 to 50 basis points flatter than it normally would be,” he (Morgan Stanley’s Jim Carron, fixed income portfolio manager) said. “The flatness of the yield curve is instead a weaker signal about a recession than it has been in the past because of all these QE factors.”


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