The market could tank, according to signals coming from the credit market



I remember when the yield curve inverted last time. It was an early herald of the financial crisis.

(From CNBC)

Credit markets are flashing an early warning about financial conditions and the economy, but even as stocks fall in response, strategists say it’s not yet time to bail on Wall Street’s bull market.

But they do say there could be a pullback in a frothy market, and investors should take heed as some of the traditional signs of stress have shown up, such as a selloff in high yield debt, which often parallels weakness in stocks.

They also point to the flattening yield curve, a technical phenomenon when the yields of shorter-term Treasurys move closer to the yields of longer-dated notes. In this case the 2-year yield has moved higher, while the 10-year yield fell. On Tuesday the gap between the two narrowed to a 10-year low of just 63 basis points.

 That’s important because a flattening curve is sometimes viewed as a warning about pending economic weakness.