While most of the interest rate array has been increasing in a stable upward trend over the past few years, short-term interest rates had been rising more rapidly than long-term rates, driving a declining yield curve spread. Roughly five months ago, much of the interest rate spectrum rolled over, falling off of cycle highs, however spreads continued downwards as long-term rates fell more quickly than short term rates. The monthly yield curve spread, as measured by the 10-year T-Note (10y TN) minus the 1-year T-Bill (1y TB), carved a fresh cycle low at 0.08 at the end of March 2019, its lowest level since the beginning of 2007. While concerning, we don’t believe current spread levels tell us much on their own. Other factors help to provide context: the size of the spread decline from its high, additional interest rate trends, and CPI should also be considered. In this context, we believe interest rates at current levels are neutral for stocks; if the yield curve becomes negative, however, and the Fed fails to provide evidence of relief from current tightening, then a sustained market correction is possible. _____________________________
Information contained herein was obtained from recognized statistical services and other sources believed to be reliable and we therefore cannot make any representation as to its completeness or accuracy. Any statements not of a factual nature constitute opinions which are subject to change without notice.
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