The prolonged inverted yield curve – how it is creating the risk for equities
Peter Oberois
Mar. 14, 2007

The yield curve is inverted for a long time. The inversion is actually very interesting. The lowest yield is hovering around 4.48% for the five-year note. The yield on three month T-Bill is around 4.92%. The spread is small. But the longer it stays inverted; it is getting riskier every day.

The correlation between inversions in yield curve, complacency in the market and equity prices shows some interesting trends. The market gets extremely edgy and starts walking on thin ice once the bubble bursts.

The prolonged inversion in yield curve is manifestation of bubble and is very risky for the market. When you combine it with the effects of total complacency, the market is vulnerable.

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