Omnia CEO Steven Wagner Speaks with Barron’s About the Yield Curve and Its Implications for Investors
“Though last week’s big bond-market moves gave investors a reprieve, the yield curve is still pretty flat. How worried should we be?” asks Barron’s in a recent article featuring Omnia Family Wealth CEO Steven Wagner.
“There’s too much history in the shape of yield curves, and the periods of time that follow, to ignore it,” says Wagner. “If you aren’t paying attention to it and not re-evaluating the risk you have in your portfolio, then you’re not exercising prudent judgment.”
For those who are still asking “what does a flattening yield curve mean?” Wagner recently explained in US News & World Report that in normal markets, yields for longer-duration bonds are higher than shorter-duration securities. When short- and long-term yields are closer together, as in the case now with the spread between the yield on the two-year and 10-year U.S. Treasury notes, it’s known as a flattening yield curve.
Barron’s writes that a flat yield curve is unnerving in part because it’s the only step between normal and inverted: If the yield on the two-year Treasury moves above that of the 10-year, it’s a generally accepted predictor of a looming recession. As investors keep telling each other, the yield curve has inverted before each of the past seven recessions.
Providing context for the current environment, Barron’s explains that “markets started the year with Treasuries of different maturities eerily close. The two-year was at 1.9%; the 10-year at 2.46%—a difference of 0.56 percentage point—down from 1.24 points at the start of 2017. More recently, a selloff in Treasuries pushed prices lower—and yields higher—after outgoing Federal Reserve Chair Janet Yellen affirmed a policy of continuing rate hikes, while warning about inflation. On Friday, the 10-year yield climbed to 2.84%, and the two-year to 2.14%. The market is expecting about three rate hikes this year, which would add another 0.75 percentage point to the two-year yield. If the 10-year holds still…it’s the dreaded inversion.”
Wagner cautions that it’s too early to get defensive: “It’s gut-check time; it’s time to reassess the portfolio. When you get into these flattening bouts, it’s a cue to start thinking about risk and whether you’d be comfortable if things dialed back.”
The full article is available to Barron’s subscribers by clicking the link below.
Important Disclosures: Important Disclosures: Omnia Family Wealth, LLC (“Omnia”), a multi-family office, is a registered investment advisor with the SEC. This commentary is provided for informational purposes only. No portion of any statement included herein is to be construed as a solicitation to the rendering of personalized investment advice through this communication. Consult with an accountant or attorney regarding individual tax or legal advice.