Citigroup strategists point out that while reverse yields on US Treasuries can be seen as a warning sign of a recession, US stocks usually rise after a reverse yield occurs.
Citi’s strategists, including Alexander Saunders, said in a report that historically, US stocks rose the year after the yields on US 2-year and 10-year bonds reversed. But he added that returns are often limited. Yields for both maturities reversed last week for the first time since 2019.
“If the reverse yield stays mild, we can expect a slightly positive return from equities, albeit below average,” the report said.
Weekly changes in the S & P 500 Index
Source: Bloomberg
“In the third year, US equities will fall, but they will still outperform foreign markets,” he said. “Bonds will continue to perform well for a longer period of time.”
Original title:Citi Strategists Say Curve Inversion Tends to Signal Stock Gains(excerpt)