What is the Yield Curve Saying About the Stock Market??

We began to cover the yield curve much more in depth last year as the 10s-2s yield curve spread threatened to fall below zero (more commonly referred to as inversion). And even though no one could foresee the outbreak of the coronavirus becoming a pandemic that ultimately crippled the global economy, the 10s-2s spread once again accurately forecasted the recession that was triggered by COVID-19.

Lately, however, there has not been much to discuss regarding the curve as a mostly steady, choppy bond market has led to sideways price action for the notable spreads. But just because Treasury spreads have been sideways and the fixed income market has quieted considerably (mostly thanks to the Fed’s forward guidance) doesn’t mean we can become complacent and ignore yields and their relative values as the curve remains one of the best concurrent and in many cases leading indicators for stocks.