The market is a fickle mistress.
Sometimes people can see market panics coming in advance, like in 2008.
Sometimes the market drops all of a sudden leaving economists scratching their heads for decades, like the Black Monday stock market crash of 19th October 1987.
Financial crashes don’t necessarily let themselves be predicted by economic reason.
It’s an exercise in mass psychology.
Markets crash when investors panic, regardless of whether economists think they have reason to be alarmed or not.
It doesn’t stop us from looking around us to see if the writing’s on the wall. This concerns our hard-earned money after all…
One of the indicators market watchers keep an eye on is the “yield curve” in bond markets.
The yield curve is the difference between what investors can earn from long-term government bonds compared to those that are held short-term.
Those margins are narrowing for UK gilts, US Treasuries, and European bonds. When that happens, analysts break into a sweat. Cassandras come running.
Are the bond markets trying to tell us something?
Something is up
When it comes to investments, government bonds are about the safest vehicle to put your money in.
It’s a safe haven investment, which means investors flee to the bond markets when they’re worried.
Bonds are reasonably safe because governments rarely ever go bankrupt.
(Famous last words?)