Exposure rates of the Dorval Asset Management Range – 29th March 2019

To the casual stock-market observer, recent events are enough to make anyone’s head spin: despite the world equity markets surprising everyone by recovering more than 10% since the start of January, there has never been so much talk of the risk of recession in the US.

The country’s economic indicators remain reasonable, but yet the infamous yield curve – or the difference between long- and short-term rates on US T-bonds – is threatening to invert. The past seven US recessions were preceded by an inversion in the yield curve over the previous 6 to 18 months, as long-term rates fell below short-term rates. The yield curve’s predictive powers – and their much-questioned foundations – are probably due to the fact that the curve generally inverts when the economic cycle is already very mature and always after a period of tighter monetary policy.

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