As we begin the second quarter of 2022, the U.S. Treasury yield curve has inverted across several key maturities. Yields on 2, 3, 5 and 7-year Treasury bonds are all higher than on 10 and 30-year bonds.
The 2-10 yield spread is widely regarded as a leading recessionary indicator. Even as the bond market may be pricing in the possibility of a future recession, stock prices have risen from their first quarter lows.
We assess the implications of the yield curve inversion from several perspectives.
- What is the typical lag time from the inversion of the yield curve to the onset of a recession?
- Have extraordinary central bank policy actions distorted the information content of the yield curve?
- What other factors have been driving the decline in the term premium over the last several years?
- Does a low term premium make inversions statistically more likely?
We factor the latest information on inflation and interest rates into our outlook for the economy and the markets. Sandip Bhagat, Whittier Trust’s Chief Investment Officer discusses our perspectives and outlook.
Whittier Trust Company and The Whittier Trust Company of Nevada, Inc. are state-chartered trust companies, which are wholly owned by Whittier Holdings, Inc., a closely held holding company. All of said companies are referred to herein, individually and collectively, as “Whittier”. The accompanying materials are provided for informational purposes only and are not intended, and should not be construed, as investment, tax or legal advice. Please consult your own investment, legal and/or tax advisors in connection with financial decisions and before engaging in any financial transactions. These materials do not purport to be a complete statement of approaches, which may vary due to individual factors and circumstances. Although the information provided is carefully reviewed, Whittier makes no representations or warranties regarding the information provided and cannot be held responsible for any direct or incidental loss or damage resulting from applying any of the information provided. Past performance is no guarantee of future results and no investment or financial planning strategy can guarantee profit or protection against losses. These materials may not be reproduced or distributed without Whittier’s prior written consent.Download PDF