Over the weekend, we published an analysis from Citigroup looking at how long after the yield curve inverts do investors “have to worry.” The results were interesting: as Citi wrote, while sometimes inversion provides a timely signal for the economic cycle a la 2000, “where Professor Curve predicted almost the ding-dong high in the SPX”, other times, like the 2006 inversion, dished up 7 months of pain for equity bears, with 18% further upside for the SPX. The same occurred for the 1989 episode where equities continued to rally 22% into the 1990 recession.
Whatever the timeframe between inversion and subsequent events, however, the curve first has to invert. So when will that happen. One bank provided a surprising answer earlier this week, when Morgan Stanley forecast a “completely flat” yield curve around the time of the FOMC’s September meeting.
Now, in its 2018 rates outlook, BMO’s Ian Lyngen and Aaron Kohli have unveiled a far more aggressive forecast, warning that there is a “risk of an inverted 2s/10s curve as early as the March meeting – if not, then by June.”
Here are the details, as excerpted from the report:
This post was published at Zero Hedge on Nov 30, 2017.