Alternative Facts

Officials disagreed on whether the flattening of the yield curve was a reliable signal of a recession. The yield curve is the plot of government bonds of different maturities, and an inverted yield curve has often preceded recession.

Several officials said it would be important to monitor the slope of the curve. A few others thought that central bank asset purchases and other factors made it less important.

Fed minutes today showed the FOMC is willing to downgrade one of the most reliable economic indicators of the past 40 years.

Most pundits discussing the curve structure do not do so in the historically significant way.

Here's a Hooper Primer on the curve:

For cocktail party guests: Steep = good.  Flat = bad

For the "long term equity holder": Reduce exposure between 3-6 months after inversion between 2 and 10. The heavier the twist the more you run.

For the trading addict : Don't worry about the long end so much. If 2/10 or 2/5 track gradually inward, monitor if its because short rates rising or belly rates holding steady, falling. If the money curve inverts rapidly, run. Watch 1 year rates (money and Ts) relative to 5 year. And evaluate the 5 year yield relative to the growth rate. Finally, if the Fed hikes the funding rate to a level where 12 month money less 60bp is lower than FF- short everything.

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