The bond market is in a weird place this year. Risk-off behavior in financial markets has been all out of whack this year. Typically, when equity prices fall, yields fall due to investors fleeing to safer assets, such as bonds. The price and yield of a bond have an inverse relationship.
Despite drawdowns in equity prices, rates (yields) have held steady. Recently risk-off behavior has had some normality to it with investors driving down longer-term rates with purchasing long dates fixed income assets – such as the 10 year treasury.
As you can see from the chart above, short term rates are higher than long term rates, indicating an inverted yield curve. An inverted yield curve implies an impending recession – the question is when?
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