Inversion Update

Historyoftheinversion200639
The chart above covers the entire period to date of the now much talked about yield curve inversion, particularly the inversion between the 2-year treasury note and the 10-year treasury note. This chart shows the actual yields on the respective notes to show how the spread changed as yields rose about 50 basis points (1/2 of one percent) from the end of December through today. That’s a big move in a short period of time. Ok, back to the chart…


We see the inversion began during the quiet days around Christmas and New Year’s, then began expanding in the beginning of February through most of March. Then, on March 1-2, the yield on the 10-year note began a 19-bp (basis point) sprint, rising from a yield of 4.56% on February 28, to 4.75% four days later. That’s a about a three sigma weekly move, in other words enough to make you take a look, but not crazy, which would be anything over say 50 basis points in a week, which could be getting close to enough to sink any highly levered hedge funds out there who still believe in the random walk theory and anything close to a normal probability distribution operating in the market.

Remember Long Term Capital Management? Those geniuses were the wake up call to everyone who still hadn’t figured out that there is no random walk in financial markets and all but maybe the most recent main stream academic theories on the subject are garbage. All that wasted academic work and number crunching is pretty much the modern day equivalent of medieval scholars debating how many angels can fit on the head of a pin, only our modern day finance professors used fancy charts and statistics to fool themselves instead of sheer “brainpower” like their predecessors. A modern day tragic comedy is what it boils down to. Cheers!

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