The bond market often has an inverse relationship with the stock market since it is considered a 'risk off' asset. Bonds generally yield more interest for longer maturities. For example, a bond investor in a healthy economy would expect a greater yield for a 10 year treasury compared to a shorter duration. However, the yield curve can 'invert' (shorter term bond actually pays greater interest) when bond traders believe a recession is imminent. Since the Fed's reaction to a recession is to drop short-term rates to 0% and recessions cause 'risk on' assets like stocks to drop, the smart money will rotate from higher risk stocks (like tech, since it's future cash flows are highly sensitive to the cost of capital) and hide out in bonds to weather the storm and minimize downside risk.
Yield inversion info: www.investopedia.com...vertedyieldcurve.asp
This chart shows the interest spread between 10 and 2 year treasuries in blue.
Shaded vertical boxes show where the yield curve inverted in the past.
The S&P is in red (at least I think it's red. I am color blind). Note how the shaded boxes start just prior to the dot.com peak, the GFC peak, and even the Covid recession.
Currently the interest spread is heading back towards zero as the Fed is set to hike short-term rates to combat inflation, likely beginning in March. At it's current drop rate, the spread will invert in ~Q4 of this year, which means a recession is on the table for the first half of 2023.
Keep checking back for updates as I will be watching this one VERY closely.
Yield inversion info: www.investopedia.com...vertedyieldcurve.asp
This chart shows the interest spread between 10 and 2 year treasuries in blue.
Shaded vertical boxes show where the yield curve inverted in the past.
The S&P is in red (at least I think it's red. I am color blind). Note how the shaded boxes start just prior to the dot.com peak, the GFC peak, and even the Covid recession.
Currently the interest spread is heading back towards zero as the Fed is set to hike short-term rates to combat inflation, likely beginning in March. At it's current drop rate, the spread will invert in ~Q4 of this year, which means a recession is on the table for the first half of 2023.
Keep checking back for updates as I will be watching this one VERY closely.