Jeff Gundlach, we love you, but the yield curve looks amazing. Not sure why you’re trying to spook everybody. Reuters reported that Jeff Gundlach was worried about the yield curve. We’ll try to explain what all that means.
First, Help Me..What’s the Yield Curve?
This yield curve (below) compares the 10 year note yield to the 2 year treasury yield. When some combination of short term yields rise or the longer term yields fall it implies that bond investors don’t expect much for the future. If growth were strong bond investors would demand higher yields down the road. Lower yields longer term mean they don’t expect growth or inflation.
When the yield curve goes negative, meaning that the 2 year yield is higher than the 10 year yield, it implies that an economic downturn is coming.
We’re here to put everything in perspective that we’re not even close to that setup.
Nowhere Near A Negative Yield Curve: In Fact This Curve Looks Amazing!
Please everybody look at this chart and let us know if this concerns you.
Chart Credential Small Print: St Louis Fed with Elazar Advisors official scribbles created by super-intelligent AI automation. They wrote this entire article so Jack Ma must be right that we’re headed to a Matrix style-World War III. Oops we went off subject.
What you see in the above chart is that, yes, when the yield curve goes negative (blue line: right margin)… stocks (the red line) did drop.
That said it took a little while each time for stocks to drop after the yield curve went negative. More than that stocks didn’t actually start dropping until the yield curve bottomed and started moving back up.
We’re far from that scenario.
So according to the above chart stocks should rocket higher as the yield curve drops until some time long after it goes negative and then reverses back up.
I think we have time, which is bullish.
Conclusion
Jeff? Jeff? This worries you?
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