Updated: Aug 30, 2022
Inverted Yield Curve: when the 2-year treasury yield is higher than the 10-year treasury yield. The inversion of this yield curve has predicted a recession for the last 40+ years.
As of today (August 5th, 2022), the 10-year treasury is = 2.827%
As of today (August 5th, 2022), the 10-year treasury is = 3.229%
But if the Federal Reserve increases just another 25 to 50 bps, the prime rate will invert too, where the prime rate could be higher than the current ten-year treasury yield. VERY INTERESTING !!!
This could be a huge concern. Why would BIG money place it on a ten-year treasury, where they could quickly put cash in 30-day or prime rate yields for a greater return at over 3%+? Why hold a ten-year treasury if it could drop 1.00bps in less than 30 days (what happened last week)? Why have long-term bonds if we anticipate the Fed will increase rates to combat inflation? But Fed also knows if they raise it too quickly, no one will buy their long-term notes.
This all comes down to our national debt... will other countries and big money continue to buy our long-term debt? How will the Fed get itself out of this pickle situation? Could raising rates too quickly cause a deeper recession, a possible crash? How will job numbers across the country influence the fed's future decisions?
We shall find out in the coming months as we monitor the bond rates, job numbers, CPI, and M1/M2 numbers. These numbers will help influence the direction of the Fed and shift the stock market.