Treasury yield curve mostly inverted

In contrast to the past two months, when the Treasury yield curve was only modestly and partially inverted, most of the Treasury yield curve is now clearly inverted. We're not quite to a fully inverted yield curve, but we are well on our way.

Quite a number of people believe that an inverted yield curve "signals" that a recession is coming, but I'm not persuaded by arguments based on mere correlation, when causality has not been demonstrated.

Here's the basic yield curve, courtesy of Bloomberg.com:

The 30-year (actually 25-1/2 year) yield is now below the 6-month yield (inverted).

The 10-year yield is now the same as the 2-year yield.

The remaining good news is that the curve is not inverted from 5-years out. That may seem like small solace, but it may prove to be the key to resolving the uncertainty about the meaning of the current yield curve.

For now, the yield curve is a tale of two distinct stories: the 6-month to 5-year story and the 5-year to 30-year story. Reconciliation of the two disparate stories is an open issue.

Note: this chart will update automatically, so my statements about the chart itself may no longer be true by the time you view it.

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Please read our Stock Market Outlook for 2006 and our Daily Stock Market Commentary.

-- Jack Krupansky