SGH Wealth Management: What I'm Reading

The Multi-Trillion Dollar Contradiction

SGH Wealth Management’s “Read What I’m Reading” Apr. 2023 | Apr. 7th, 2023

We have just touched the deepest Yield Curve Inversion since 1981… an indicator that economist’s joke has “predicted 10 of the last 5 recessions”. Defined as long-term interest rates earning less than short-term interest rates, investors can currently get a (slightly) higher coupon payment if they go short than if they make a longer-term bond investment.

Investors tend to switch their attention to longer term bonds when they’re pessimistic over the outlook for the economy, and today they likely believe the central banks are choosing to fight inflation vs. encouraging economic growth.

The opposing force, corporate credit spreads and equity risk premiums are stable (& even declining). Sending a clear message that the markets see a resilient economy ahead. One analyst noted that the U.S. disparity between the higher 2-year Treasury rates and lower 10-year rates might simply mean that investors think the U.S. Fed is going to keep raising interest rates (high short-term rates) AND successfully tame inflation (meaning that the 10-year rate would offer positive after-inflation returns over time).

Definitely something to keep an eye on in the coming months but luckily, the key to successful investing is not predicting the future but rather preparing for it.

Bloomberg News interviewed Sam Huszczo, CFA, CFP’ on 2023 ETFs Every Retail Investor Should Keep an Eye On in the Top Link Below: