No Inverted Yield Curve = No Double Dip?
Bloomberg seems to think that the lack of an inverted yield curve (meaning a bond market in which long-term bond yields fall below short-term yields) means there will be no double-dip to this recession: The inverted yield curve has been a prelude to almost every earlier recession.
But . . . short-term rates are basically zilch. How do you get a long-term rate under that? Slide it under the carpet? Stuff it in a gopher hole? At least one investment manager is thinking the same thing:
An inverted yield curve has twice failed to predict a recession — in late 1966 and late 1998. The bears say bonds may be sending another “false positive.” With the Fed’s target rate for overnight loans between banks at a record low of zero to 0.25 percent, it may be impossible for long-term yields to fall below short-term debt.
“As long as the Fed continues with ultra easy policy the yield curve’s relative importance as an economic signal is diminished,” said Christopher Sullivan, who oversees $1.6 billion as chief investment officer at United Nations Federal Credit Union in New York.
As for the politics of it, the optimists at the Cleveland Fed are predicting a sclerotic 1.14 percent growth over the next year — not exactly guns-blazing, unemployment-slashing stuff.