Saturday, May 12

Market nervousness

I use the cumulative degree of inversion in 3-year, 5-year and 10-year bond yield curves as an indicator of market nervousness. Using the data from RBA table F2, I simply add the percentage points of yield curve inversion (yes it is a crude indicator).

In the two years before the collapse of Lehman Brothers, this indicator was screaming.

Well, following the recent European elections, it is starting to move up again. It is nowhere near its pre-GFC levels but it is something to keep an eye on.

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