We have been discussing the implications of an inverted yield curve since its occurence. We thought we had made our last post on the topic for some time, but once you start looking for inversions they seem to pop up all over the place.
ContraHour notes that the UK yield curve has been flat to inverted since November 2004. Not surprisingly the UK economy has slowed during that time period. Given the UK experience it is not clear that it means bad things for the U.S. market.
Barry Ritholtz at the Big Picture notes that yield curves around the world are flattening. It becomes more difficult to ignore the implications of an inverted yield curve when you realize the world’s bond markets are in a similar state.
Most analysts have looked at the Fed for reasons why the yield curve has inverted. Kevin Hassett at Bloomberg.com thinks we should be looking to the long end of the curve for why the yield curve is so flat. Hassett believes markets are more nervous about geopolitical risks than commonly thought. Therefore investors have fled to risk-free assets like long-term treasury bonds. We are not sure about this thesis, but interesting nonetheless.
Howard Simons at RealMoney.com looks beyond the yield curve inversion to see how investors might profit from it. Simons believes that once the inversion is over investors can buy long term treasury bonds for capital appreciation purposes.