The U.S. Yield Curve Inversion Is a Happy Sign for Some
If the Fed is persuaded to rein in the interest rate hikes, this could take the steam out of the dollar. Emerging markets would be pleased about that.
There's a technical reason for the inverted U.S. yield curve, but it might yet have ugly consequences.
Photographer: Andrew Harrer/BloombergThis week’s inversion of the two- to five-year U.S. Treasury yield curve, the first since well before the global financial crisis, is more about the year-end funding pressure on big banks than fears of an economic downturn. But this doesn’t mean it might not herald bigger things globally.
An inverted curve – when shorter maturity yields are higher than longer maturity debt – is often seen as an indicator of impending recession (it’s happened before the last seven of them). That’s hard to reconcile with November’s U.S. manufacturing PMI, a barometer of industrial activity, which rose to 59.3 from 57.7 in the previous month.