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PST - Misreading The Signs: Is Yield-Curve Inversion A False Alarm?
ProShares UltraShort Lehman 7-10 Year Treasury
By Sharat Kotikalpudi
The US yield curve dipped into inverted territory recently. But that's not necessarily a bad omen for equities. There are several important warning signals - and lately, the yield curve's slope is the only one flashing red.
The curve plots the gap between long- and short-term US Treasury yields, and there's a reason investors pay attention to it: the curve has inverted before each of the last seven recessions. But inversion isn't a foolproof recession indicator, and as our colleagues have noted, it doesn't always mean disaster for stock markets.