There has been increasing focus on the possibility of an inversion in the yield curve, which has been a precursor to every modern-era recession. We believe the yield curve will stay flat for the foreseeable future, with no downturn in the U.S. economy on the horizon.
There has been increasing focus on the possibility of an inversion
in the yield curve, as one section of the yield curve inverted for
the first time in more than 10 years, with the yield on 5-year
notes falling below 3-year notes. However, the recent inversion
occurred in only one part of the yield curve.
The spread in yields between the 2-year and 10-year U.S. Treasury
notes has tightened in the past year based on several factors,
including the expectation that the Fed will steadily increase
interest rates. In early December, when one part of the yield curve
briefly inverted, the spread between 2- and 10-year yields was only
11 bps, with the 2-year at 2.80% and the 10-year at 2.91%.
While an inverted yield curve has been a precursor to every
modern-era recession, a flat yield curve, on the other hand, does
not seem to have much predictive power. We believe the yield
curve will stay flat for the foreseeable future with no downturn in
the U.S. economy on the horizon.
2019 Outlook — What’s ahead amid slowing growth
Get the full story
Past performance is not a guarantee of future results.Risk factos: Investment return and principal value will fluctuate, and it is possible to lose money by investing. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets. Fixed income securities are subject to interest rate risk and, as such, the net asset value of a fixed income security may fall as interest rates rise. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated bonds. Investing in the energy sector can be riskier than other types of investment activities because of a range of factors, including price fluctuation caused by real and perceived inflationary trends and political developments, and the cost assumed by energy companies in complying with environmental safety regulations. These and other risks are more fully described in a Fund’s prospectus.
The opinions expressed are those of Ivy Investment Management Company and are not meant as investment advice or to predict or project the future performance of any investment product. The opinions are current through December 2018, are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on an investor’s specific objectives, financial needs, risk tolerance and time horizon.