Investors Were Just Issued a MAJOR Warning
Dear Money & Crisis Reader,
The bond market just issued a MAJOR warning to investors…
And when the bond market is flashing “danger”, investors need to listen.
Reason being, the bond market is significantly larger and more sophisticated than the stock market.
Because of this, bonds typically register major changes in the U.S. economy and the financial markets long before stocks, making them a great predictor for what’s to come.
And according to the current state of the bond market, massive changes are coming…
How to Spot a Well-Behaving Bond Market
The bond market just issued one of its most important warnings.
But before we get to that, we need to understand what a functioning bond market looks like ― so we know how to identify a breakdown.
When we talk about the Treasury market, we’re actually talking about Treasury Bonds that are issued for different time periods ― ranging from four weeks to 30 years.
Of these various bonds, two are considered the most important for examining economic developments: the Three-Month Treasury and the 10-Year Treasury.
These two Treasuries are most important for a simple reason.
Three months represents an economic quarter… 10 years typically encompasses an entire economic cycle (both growth and contraction).
Together, the yields on these two Treasuries are called the yield curve.
It’s called a “curve” because under normal conditions, bond investors demand that a Treasury bond pay them a greater yield for lending their money to the U.S. for a longer time period.
So under normal conditions, the yield on the 10-Year Treasury is greater than the yield on the Three-Month Treasury.
Of course, when things are operating as normal we don’t need to worry.
It’s when the bond markets enter a period of abnormal conditions ― called a yield curve inversion― that we need to pay attention…
Identifying a Breakdown in Bonds
Perhaps the single most dreaded bond market signal is a yield curve inversion.
This is when the yield on the Three-Month Treasury is HIGHER than the yield on the 10-Year Treasury.
This happens when investors are dumping short-term, Three-Month Treasuries ― forcing the yields on those bonds to RISE…
And instead putting their capital into long-term, 10-Year Treasuries ― forcing the yields on those bonds to FALL…
In simple terms, this is the bond markets way of saying, “I’m REALLY worried about the near future… so I’m going to park my capital in a long-term bond where it will be safe.”
And when are bond markets most worried about the near future?
In a recession.
Take a look at the chart below of the Three-Month Treasury and 10-Year Treasury yield curve.
The horizontal line represents when the difference between these two bonds’ yields is zero. So anytime the orange line (representing the Three-Month and 10-Year Treasuries) falls below the horizontal black line, the yield curve is inverted.
Now, the three gray shaded areas on the chart are recessions.
So as you can see, recessions hit roughly 12 months after every yield curve inversion.
Why am I mentioning this now?
Because the bond market just triggered a new yield curve inversion this week ― for the third time this year.
These are all shown on the chart below.
Now, a temporary yield curve inversion can happen and it’s no big deal. But once you start seeing it happen repeatedly ― like three times so far this year ― it’s usually a sign to watch out.
And that’s exactly the case today…
Put another way, the likelihood of a recession hitting in the next 12 months is the highest its been in over 10 years.
What does this mean for us?
It means that now is NOT the time to put a lot of capital to work in the stock markets to the long side.
Instead, now is the time to be defensive, and start preparing for what happens if the U.S. economy rolls over… and stocks follow suit.
If you’re looking for investments to profit as the wheels come off the economy, I found two that could DOUBLE in the coming months.
Already they’re up 3% and 4% in less than a week. But I can’t reveal them here.
I’m writing a report on the opportunities and sending it to subscribers of my Strategic Impact newsletter in the next few weeks. I’ll let you know when it hits ― along with how to access it.
In the meantime, if you have any questions, comments, or feedback feel free to send them here.
Editor, Money & Crisis