Investors should treat analysis of bond yields with caution

It was jamescarville , an American political strategist, who said, in an oft-repeated turn of phrase, that if he was reincarnated he would like to return as the bond market, owing to its ability to intimidate everyone. Your columnist would be more specific: he would come back as the yield curve. If the bond market is a frightening force, the yield curve is the apex of the terror. Whichever way it shifts, it seems to cause disturbance.When the yield curve inverted last October, with yields on long-term bonds falling below those on short-term ones, analysts agonised about the signal being sent. After all, inverted curves are often followed by recessions. But now the curve seems to be disinverting rapidly. The widely watched 10-2 spread, which measures the difference between ten- and two-year bond yields, has narrowed markedly. In July two-year yields were as much as 1.1 percentage points above their ten-year equivalents, the biggest gap in 40 years. They have since drawn much closer together, with only 0.3 of a point between the two yields.