Mohamed A. El-Erian , Columnist

Yield Curve Panic Was an Overreaction, But That Doesn't Mean It Was Harmless

If consumers are spooked by breathless coverage in the news media, they could cut spending and start some real trouble.

August 18, 2019 at 11:00 PM UTC

Mohamed A. El-Erian is a Bloomberg Opinion columnist. A former chief executive officer of Pimco, he is president of Queens’ College, Cambridge; chief economic adviser at Allianz SE; and chair of Gramercy Fund Management. He is author of “The Only Game in Town.”

Enjoy the ride, and you’ll be fine.
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Inversion of the U.S. Treasury yield curve caused quite a reaction in markets and beyond last week. Losses of around 3% for the major U.S. indices on a single day were accompanied by headlines screaming about the recession signals sent by the unusual occurrence: investors willing to receive less yield on 10-year bonds than on 2-years, even though they were committing their capital and taking risk for a longer period.

Yet, there is good reason to believe that all this was an overreaction, and not just because the curve had reverted by the end of the week. It’s likely to invert again in the coming weeks and months. Let’s consider now why a panic may not be in order.