mns2k

I have seen several articles recently (good series in the FT today) that the T-Bond curves for short and long are going inverted, i.e., the short term rate is going higher than the long term rate. Everytime this happens it is a precursor to a severe slow down in the economy or a recession.
I seem to be the only one concerned. Am I being paranoid?

Palmateer

Sounds plausible to me.

Does precursor mean you start cursing ahead of time?

mister_two

And if someone is in, or near, retirement age (which is probably most of the folks in this section of s2ki)it's probably best to be more conservative with the bond funds. Go with short term bond funds (less risky) rather then long term (longer maturity) bond funds. When the yield curve reverts back to it's normal shape, long term bond funds will get hit a lot worse than short term bond funds.

Also, it's probably best to avoid high yield (junk) bond funds right now. The spread against the Treasury (which is like a index) is narrow right now which means you are not getting a lot of premium to take on the additional risk of high yielding bonds.

Given the current economic conditions (oil prices, inverted yield curve, housing bubble in selected areas of the country, etc) it's best to take a cautious, conservative approach to investing.

cordycord

I thought that an inverted bond curve meant mainly that the market forsees extended low interest rates.

Harpoon

I get paid to answer these questions, but I'll do this one for free:

With rates this low, a flat/inverted curve is not as Armageddon-inducing as normal, from a historical perspective. So, the advice would be, to buy/stay invested in US Large Cap equities, which are approximately still 20-25% percent below where they should be. (Tech is even more at a discount if you're willing to go there. The QQQQ's should suffice if you are). If rates go up, and the curve stays flat or goes inverted, things could get rocky in the short-term.

I'd concur with mister two, with two minor modifications: age has nothing to do with it. Someone hitting retirement now has a chance of making it to 100 and should be a long-term investor in focus. Bond funds in general should be avoided. Go with a muni-bond money market account (or a traditional money market account if using IRA funds) and wait for the bond market to drop if rates rise dramatically before buying into long-term bond investments. (I should disclose I have client money in TIPS and have been happy with the performance, but am hedged against a drop in those securities).

Side note - consider using Exchange-Traded Funds (ETFs) instead of mutual funds for all investing needs. Way cheaper and more predictable.

tritium_pie

I'm hiding my money in foreign stocks-- in particular a Canadian utility that pays nice dividends. Also been playing with oil shipping companies-- also with nice dividends, but lately their volatility has caused me to stop loss out (with small gains, generally). Also toying with putting money into Brazil or China. YMMV

$.02