‘I’ve Always Struggled With The Inversion Fascination’
"I’ve always struggled with the fascination with inversion, because the curve inversion really tells us that rates are about to peak", SocGen's Kit Juckes writes on Tuesday, adding that "that there is usually a recession a year or so after Fed Funds have peaked, isn’t exactly earth-shattering."
No, it's not. And as Bloomberg's Mark Cudmore illustrated rather poignantly on Monday, if what you're looking for is an infallible recession indicator from the curve, what you should be doing is "wai
Inversions are a useful indicator that monetary policy is tight. It is a necessary condition, the sufficient condition is spread widening. The analysts citing subsequent steepening should tell you that is the Wiley Coyote moment when the central bank and the market realize that a recession is nigh and steepen the curve by bidding up the front end. Often the curve will then flatten again as players reach out the curve for yield. And thus it goes…..
spread widening= credit spread widening
A level of inversion gets everyone’s attention as it should. The inevitable steepening is wracked with subject criteria thus explaining the lag time to these recessions. Not the least of the subjective criteria is the level of current credibility in the system. Currently I speculate that level is pretty close to an all time low . Everything we discuss in these post indicates that guess to be correct. Expect a lot of confusion injected by the Fed and the power behind the scenes to obfuscate reality thus denying the seemingly obvious…..