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Inverted yield curve? So what! What if yields turn negative?
(Note: companies that could be impacted by the content of this article are listed at the base of the story (desktop version). This article uses third-party references to provide a bullish, bearish and balanced point of view; sources listed in the “Balanced” section)
The Dow Jones Industrial fell more than 800 points on August 14
th when the yield on the 10-year treasury bond fell below that of the 2-year treasury note. Much has been made about the inversion of the yield curve and how that often signals a recession. Less has been made about the fact that the government bond yields are now below 2% and appear to be headed lower. Prominent bond experts such as Mohamed El-Erian and Alan Greenspan say they would not be surprised to see rates go negative. The reason for the decline is obvious. Investors are losing confidence in the economy and moving money from the stock market to places of security. Will this lack of confidence become a self-fulfilling prophesy as decreased investment and spending cause economic weakness (bear case) or is it a mere coincidence (bull case)?