Misreading the Signs: Is Yield-Curve Inversion a False Alarm?


2019/04/24 10:53
近期美国收益率曲线跌至反转区域。但这不一定是股市的坏兆头。有几个重要的警告信号 - 而最近收益率曲线的斜率是唯一一个闪烁的红色。

The US yield curve dipped into inverted territory recently. But that’s not necessarily a bad omen for equities. There are several important warning signals—and lately the yield curve’s slope is the only one flashing red.

近期美国收益率曲线跌至反转区域。但这不一定是股市的坏兆头。股市有几个重要的警告信号 - 而最近收益率曲线的斜率是唯一一个闪烁的红色。

The curve plots the gap between long- and short-term US Treasury yields, and there’s a reason investors pay attention to it: the curve has inverted before each of the last seven recessions. But inversion isn’t a foolproof recession indicator, and as our colleagues have noted, it doesn’t always mean disaster for stock markets.


So what warning signs should investors be heeding? To build a dashboard, we analyzed scores of signals from our models to see how well they predicted large equity sell-offs—defined as a drawdown of 15% or more—dating back to 1950.

那么投资者应该注意哪些警告信号呢?为了构建一个仪表板,我们分析了来自我们模型的大量信号,看看他们预测大股票抛售的程度如何 - 定义为可追溯到1950年的15%或更多的亏损。

This period included downturns triggered by the bursting of the dot-com bubble and the Great Recession, as well as the slumps that followed the end of the Bretton Woods system of fixed exchange rates, Black Monday in 1987 and the First Gulf War.


Gauging Effectiveness from Two Perspectives


We looked for signals with good precision, measured by how often its warning signal precedes an actual sell-off. Signals also must have good recall, measured by how often there is a sell-off after a signal begins to flash.


It’s not uncommon for a signal to score highly in one category but poorly in the other. 


Market signals have similar shortcomings. This is what the late Nobel Prize–winning economist Paul Samuelson meant when he quipped that the stock market had predicted nine of the past five recessions.


Building a Risk Dashboard: Four Signals to Watch


Our research uncovered four signals that score reasonably well on both metrics when they are more than one standard deviation below their means. They’re the key component of our risk dashboard:


1. The yield curve. Specifically, we look at two measures—the difference between 10-year and two-year Treasury yields, and the difference between 10-year and three-month yields (the part of the curve that inverted in March). The slope tells us a lot about bank profitability. Banks borrow at short-term yields and lend at long-term yields, so when short-term rates rise above long-term rates, profits decline. An inverted curve also signals slower economic growth and low inflation expectations, which has broader implications for corporate profits.

1.收益率曲线。具体来说,我们考察两个指标 - 10年期和2年期国债收益率之间的差异,以及10年期和3个月期收益率之间的差异(曲线的部分在3月份反转)。斜率告诉我们很多关于银行盈利能力的信息。银行以短期收益率借入并以长期收益率贷款,因此当短期利率高于长期利率时,利润下降。倒转曲线也表明经济增长放缓和通胀预期较低,这对企业利润具有更广泛的影响。

2. Credit spreads. This is the extra yield that investment-grade and high-yield corporate bonds provide investors over comparable Treasury bond yields. Credit spreads are a reliable measure of overall corporate health and creditworthiness; the higher the yield spread, the higher the borrowing cost for companies—and the potential risk for investors.


3. Equity carry. This measures the equity market’s near-term valuation. Specifically, we evaluate a host of trailing and forward measures of earnings, dividends and cash-flow yields relative to short rates. When equities are yielding low on these measures, it suggests that the market is expensive and that the probability of a sell-off is high.


4. Equity quality. Quality is an indicator we use to assess whether corporate balance sheets are generally overextended. Overextension is common late in the cycle because companies tend to overestimate future demand and build extra capacity to meet it. But when demand doesn’t materialize, equities often sell off. To gauge quality, we analyze metrics such as net equity issuance versus share buybacks, net debt relative to net cash, and capital expenditures relative to depreciation.


The Risk of False Alarms


Here’s the interesting thing: the yield curve was the only one of the four signals flashing a warning when it inverted on March 22. As we’ve seen, no signal is infallible—not even the big four.

这是有趣的事情:收益率曲线是四个信号中唯一一个在3月22日反转时闪烁警告。正如我们所见,没有信号是绝对可靠的 - 甚至不是四大信号。

According to our models, inversions with the three-month Treasury yield above the 10-year yield—the scenario last month—have had a historical precision of 45%. That’s pretty good compared to signals that didn’t earn a spot on our dashboard. But an inverted curve still turned out to be a false alarm more than half the time over the past seven decades.

根据我们的模型,三个月国债收益率高于10年收益率的反转 - 上个月的情景 - 具有45%的历史精确度。与没有在我们的仪表板上获得一席之地的信号相比,这是相当不错的。但在过去的七十年中,倒转的曲线仍然是误报的一半以上。

So, what does this all mean? At the moment, credit spreads, equity carry and equity quality signals are either neutral or slightly bullish when it comes to taking equity risk. That wasn’t the case when the curve inverted briefly in December. At that time, two other signals—credit spreads and equity carry—were also flashing red.

那么,这意味着什么?目前,信用利差,股票carry和股票质量信号在采取股票风险时要么中性,要么略微看涨。当曲线在12月短暂倒转时,情况并非如此。那时,另外两个信号 - 信用利差和股票carry - 也在闪烁红色。

That was the time to rein in risk exposure—in part because equities tend to sell off as the curve flattens, and the market starts to price in slower growth and a possible recession. After the curve actually inverts, stocks tend to rebound, often because the Federal Reserve either begins to cut interest rates or, as it did at the start of 2019, stops raising them.

这是控制风险敞口的时候 - 部分原因是随着曲线趋于平缓,股市趋于抛售,市场开始以较慢的增长和可能的衰退定价。在曲线实际反转之后,股票往往会反弹,通常是因为美联储要么开始降息,要么就像2019年初那样停止提高利率。

The way we see it, yield-curve inversion on its own is something to monitor, not a sign that it’s time to change your asset allocation. And it’s only one of the four signals that we think provide a better reading on equity risk. Without confirmation from at least one of the other three, there’s a fair chance that the yield curve is sending a false alarm.


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