Don't Trust the Inverted Yield Curve Outside of the U.S.
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Don’t Trust the Inverted Yield Curve Outside of the U.S.

Other examples where a yield curve inversion wasn’t followed by a recession include Australia where the inversion occurred four times since 1990, but produced only one recession–a 25 percent success rate. Other instances include the United Kingdom where the gilt yield curve inverted in 1985 and 1997, but no recessions followed after 12 months.

The indicator was more reliable for Germany, which saw recessions in the mid 2000s and 2009 that were preceded by an inverted yield curve. During the throes of the European debt crisis in 2012, however, Germany went into a recession where an inverted yield curve wasn’t present prior to the crisis.

Pre-Christmas Stock Slide Warrants Bond ETFs

The Federal Reserve squelched the possibility of a Santa Claus rally in the markets last week by raising interests rates a fourth and final time to end 2018. This has precipitated a continued move into bonds, and investors can capitalize on this safe-haven shift with fixed income exchange-traded funds (ETFs).

ETF investors can look at options like the SPDR Portfolio Short Term Corp Bd ETF (NYSEArca: SPSB), which seeks to provide investment results that correspond to the performance of the Bloomberg Barclays U.S. 1-3 Year Corporate Bond Index.

 SPSB invests at least 80 percent of its total assets in securities designed to measure the performance of the short-termed U.S. corporate bond market. Ideally, shorter-term bond issues with maturities of three to four years are ideal to minimize duration exposure should the bull market enter another correction phase.

Another short-term bond ETF option is the iShares Short-Term Corporate Bond ETF (NasdaqGM: IGSB), which seeks to track the investment results of an index composed of U.S. dollar-denominated investment-grade corporate bonds with remaining maturities between one and five years. IGSB provides investors with exposure to short-term U.S. investment grade corporate bonds.

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