Recession signal from bond yield inversions could prompt portfolio rebalance: Experts
BNN Bloomberg
Talk of an upcoming recession is raising angst after a closely watched indicator flashed a warning sign, but experts say it could be a needed spark for investors to take a more active look at their portfolios.
Talk of an upcoming recession is raising angst after a closely watched indicator flashed a warning sign, but experts say it could be a needed spark for investors to take a more active look at their portfolios.
Colin Cieszynski, chief market strategist at SIA Wealth Management, says investors should be ready, not complacent or passive, heading into an economic downturn.
"It's a little bit more of an active market for investors right now. It's the kind of time where you need to be paying attention and it's not necessarily good to just sit back and just pretend everything is fine."
Concerns about recession surfaced in recent weeks after inversions in the yield curve for U.S. bonds, a frequent indicator of an economic downturn.
An inversion occurs when the rate of short-term bonds exceed longer-term ones, which signals investors are concerned about long-term prospects for economic growth. In recent weeks, the five-year and 30-year bond rates inverted for the first time since 2006, followed by the two and 10-year bonds.
A persistent inversion of at least one month for the two and 10-year bonds in particular has historically been an early warning of a possible recession. The spread has a 70 to 85 per cent success rate in predicting recessions since 1980, says BMO deputy chief economist Michael Gregory.
