- Chart on the Go
Here’s insight to consider as the yield curve continues to move in reaction to potential rate hikes and current economic sentiment.
We looked at historical data to examine how fixed income performed when the yield curve inverted:
- During the past four periods of persistent yield curve inversions, fixed income has posted positive returns. Specifically, longer term bonds outperformed shorter term bills and high-quality investment-grade bonds outperformed lower quality high-yield bonds. Securitized sectors, like agency mortgage-backed securities (MBS), also posted strong returns.
- Because inverted yield curves generally convey that market sentiment is negative about future economic growth and inflation, duration and quality tend to perform well.
- As the yield curve continues to move in reaction to potential rate hikes and economic sentiment, we believe investors could benefit from a barbell approach. This balances risk and return potential by investing in both the short and long ends of the yield curve.