A closely watched section of the U.S. yield curve inverted on Wednesday for the ...
SAN FRANCISCO/NEW YORK - A closely watched section of the U.S. yield curve inverted on Wednesday for the first time in over 12 years, rattling investors already worried that a U.S.-China trade war might trigger a global recession and kill off a decade-long bull market on Wall Street.
A yield curve typically has an upward slope — when the yields are plotted on a graph — because investors expect greater compensation for the risk of owning longer-maturity debt. An inversion, when shorter-dated yields are higher than longer-dated ones, is considered a warning of a looming recession. “The equity market is on borrowed time after the yield curve inverts. However, after an initial post-inversion dip, the S&P 500 can rally meaningfully prior to a bigger US recession related drawdown,” Bank of America Merrill Lynch analysts wrote in a report on Monday.
S&P 500 corrections related to recessions average 32% and tend to last just over a year, according to Bank of America Merrill Lynch.
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