In a recent note, Richard Bernstein highlighted some recent trends in global yield curves:
“One of our favorite indicators is the slope of the yield curve. Yield curves have historically been very good predictors of future profits growth and of future trends in equity market volatility. Steep curves (i.e., a wide, positive spread between 10-year and 2-year notes) have generally been followed by periods of stronger growth and lower volatility, whereas inverted yield curves (i.e., the 2-year rate is higher than the 10-year rate) have generally been followed by profits recessions (i.e., periods with negative year-over-year trailing EPS growth) and higher volatility.
Chart 2 also reflects that yield curves are inverted or very flat in a number of countries, including some of the BRICs. Most investors are probably not surprised that Greece, Portugal and Ireland currently have the world’s most inverted yield curves, but our guess is that investors have no idea that Brazil’s yield curve is a mere 1 basis point from inversion, or that India’s is only 2 basis points from inversion.”
Full Paper Here.