Game of Trades: This is Exactly Like the 1929 Yield Curve Inversion
The 10-year Treasury yield curve has inverted relative to the 2-year yield. In other words, investors can get a higher yield on 2-year Treasuries than 10-years. This yield curve inversion has been a strong predictor for a recession within 18 months.
The Game of Trades YouTube channel looks at the current trend in yield curves and sees a strong similarity to that of the 1929 yield curve inversion. Does that mean investors should throw in the towel now?
Not yet. But traders should look for a lot bigger swings ahead. If the daily swings in the stock market in the past few months have been frustrating, it’s about to get worse.
The stock market started an 80 percent crash in late 1929. However, the yield curve started to invert in early 1928, and continued to worsen until the stock market peaked in August 1929. In other words, the curve stopped inverting as soon as the 1929 stock bubble burst.
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In other words, an inverted yield curve doesn’t mean the market may drop yet—instead, it may first have a massive rally in the coming months. The stock market doubled between 1928 and its peak in 1929 as the yield curve started inverting back then.