The inverted Treasury yield curve indicates lower-than-expected growth and/or inflation, asset manager Cathie Wood says.
The asset manager Cathie Wood, chief executive of Ark Wealth Management, has expressed opposition to much more in the way of interest-rate increases from the Federal Reserve.
Her thoughts came in a web presentation and tweet over the weekend.
In the Saturday tweet, she wrote, “Yesterday, the yield curve – as measured by the difference between the 10-year Treasury and 2-year Treasury yields – inverted, suggesting that the Fed is going to raise interest rates as growth and/or inflation surprise on the low side of expectations … which will be a mistake.”
Inversion means two-year Treasury yields exceed 10-year yields, which is the opposite of normal. Investors usually expect higher income when they invest for longer periods.
Some experts say yield-curve inversion indicates that recession is on the way, though the lag time isn’t clear. The two-year yield recently stood at 2.44%, compared with 2.42% for the 10-year yield.
While many investors and economists expect the Fed to lift interest rates by 0.5 percentage point at its meeting next month, Wood says the ramifications of the inverted yield curve will help keep the central bank move at 0.25 point, she said in the web presentation.
“The great fear is that we’re in a replay of the 1970s, a time of double-digit inflation and interest rates,” Wood said. “We don’t think that’s the case. The bond market is sending signals that you can’t do this.”
To be sure, “the Fed may want to play it tough, but I think the bond market will give them an even more severe warning that they’re playing with fire,” Wood said.
She said the two-year Treasury yield already prices in another three to five rate hikes by the Fed.
“If the bond market is successful in changing the Fed’s mind, then there will be a very bullish environment,” she said. “I do believe that’s what’s going to happen.”
