Schedule a Free Consultation

facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Inflation, a Flattening Yield Curve, and What it Means for the Future Thumbnail

Inflation, a Flattening Yield Curve, and What it Means for the Future

“The game is afoot!"

-Sherlock Holmes

Changes in market prices (of stocks, bonds, commodities, currencies, or anything else) are a combination of “signals” and “noise”.   Noise is background chatter, reflecting random changes due to market mechanics (portfolio rebalancings, liquidations, asset allocation decisions, and the like) and technical factors (such as bid-ask spread and settlement procedures).  Signals reflect true changes in value.  It is very hard to decompose returns into the relevant components.   Often, hearing the signal amidst the noise is impossible.  This is the realm of analysts who make buy and sell recommendations by forecasting signals (driven by earnings, for example) and statistical models that attempt to isolate signals from the noise (the raison d’etre of many a “quant” hedge fund).

Sometimes a signal is so loud and clear you don’t need a model to amplify it.  Such a clear signal is ignored at your own risk.  The 2-year U.S. Treasury Bond yield had risen an amazing 88 basis points (0.88%) in March and on the 25th the signal became a klaxon horn as the yield rose 15 basis points, an extraordinary one-day move, flattening the yield curve (reducing the spread between short and long rates) considerably.   Signals in the bond market are particularly auspicious owing to the market’s size, liquidity, and relative simplicity, acting as a sort of “canary in the coal mine” to other markets.  The dead canary here is signaling that inflation is about to get even worse than we are already experiencing and that the Federal Reserve may have to be MUCH more aggressive to counter it, raising the specter of 1981-like rates, as some serious economists have recently posited.   A recession is all but certain in such a scenario.  We’ll see.   It is often said that the yield curve has predicted 12 of the last 7 recessions, but nevertheless, no recession has ever come without the accompanying signal.  The game is afoot -- we’ve been warned!  

Click here to schedule a call with a BWC advisor today.

The information presented in this article is obtained from or based on sources believed to be reliable. BWC does not represent or warrant its accuracy or completeness and is not responsible for losses or damages arising out of errors, omissions or changes or from the use of information presented in this article. The article does not purport to contain all the information that an interested party may desire and, in fact, provides only a limited view. Information presented does not constitute an offer to sell or a solicitation of an offer to buy any security. 

All investments involve risk, including loss of principal invested. Past Performance does not guarantee future performance. Individual client accounts and performance vary. BWC does not provide tax advice. 

About Beirne Wealth Consulting Services, LLC –

Beirne Wealth Consulting Services, LLC (“BWC”) is a privately owned, SEC Registered Investment Advisor* with offices in Connecticut and Pennsylvania. BWC provides independent, fee-based investment management services and customized financial planning solutions. Our institutional business provides consulting expertise to defined benefit and defined contribution plans, endowments, foundations and non-profit organizations. Our private clients include high net-worth individuals and prominent families, many of whom bring complex wealth management challenges and multigenerational planning needs. For more information, please visit or give us a call today at 888-231-6372. 

*Registration does not imply a level of skill or training. 

© 2022 Beirne Wealth Consulting Services, LLC (BWC). All rights reserved. Reproduction or Use without permission is prohibited.