Three reasons why this reversal of the yield curve is different



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JPMorgan explains why stocks are not at risk

JPMorgan explains why stocks are not at risk

The inversion of the yield curve has preoccupied the markets over the past few weeks, but the stock market has hit five-month highs after a first snag.

Stock market analysts at JPMorgan believe that there are clear reasons why the inverted signal of the yield curve might not say much about the economic outlook.

(1) As a general rule, a reverse yield curve would indicate that
conditions have tightened considerably. Actual rates would be high
and the availability of credit would begin to deteriorate, with an enlargement
credit spreads and the deterioration of bank loan surveys. This time
around key indicators of monetary conditions do not seem tight,
despite the inversion. Current real rates are close to zero, when they
on average 3% at the point of the last 6 inversions. HY credit spreads are
only 80 bp compared to the cycle hollows, whereas they are generally 300 to 400 bp wider
before economic recessions. Banks are very well capitalized
currently in the last 10 years, after getting indebted, and stands ready to
continue to give credit.

2) The inversion of the curve could say more
decoupling of global growth and the desynchronized nature of
monetary policy, rather than being a worrying sign of future growth in the United States.
The current gap between US and German 10-year bond yields at 250bp
30-year-olds, which could anchor US long-term rates to some
magnitude.

3) Finally, as the term premiums is totally negative, the current inverted curve could say more about
inflation expectations more moderate than growth prospects. C & # 39;
where some repricing could materialize, especially if our repeat of 2016
call wins more traction. We remain constructive on the actions given the
China turns, the dovish Fed, the potential peak in usd, move away from trade
uncertainty and the likely low inflation expectations.

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