Kieger Multi Asset Chart of the Month
Halloween Scare?
Globally, government bond yield curves have flattened as central banks started signalling the end of the era of ultra-loose monetary policy. But the flattening of yield curves accelerated last week after the UK reduced bond-issuance plans and the Bank of Canada accelerated the time of potential future rate increases.
The flattening was so striking that the longer end of the US Treasury market, the 20- to 30-year segment, became the first to invert.
Curve inversion is not a good omen; it almost always portends some form of sell-off/recession by roughly 18 months. In addition, the end of easy money may have other impacts on jittery investors.
The chart shows the 10- to 30-year US Treasury spread – a proxy for uncertainty in the medium term – and the MOVE Index which measures short dated volatility, i.e. the price of risk.
These were closely related until central banks stepped in post credit crisis; with the Fed stepping back, we may see further normalisation either by deeper curve flattening or an increase in forward looking risk. It could be a bumpy ride.
