The markets sold off early this week because of concerns over an inverted yield curve. Despite much of the yield curve having been inverted for months, 2-10’s inverted for the first time since 2007 and financial media decided to propagate this narrative. Let’s be clear – the fixed income market has been flashing warning signs for much of the year and the marginal difference between 10 basis points of steepness and a barely-inverted yield curve is negligible. We have been advocates of defensive positioning since the Spring, but don’t advise overreacting to the last 10 bps of flattening and do not recommend chasing duration after this dynamic move lower in yields.
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