Yield curve points to recession in about 22 months

Guggenheim's Scott Minerd explains: The flatter curve is a bad sign, and Fed hikes are likely to result in more flattening

Jun 7, 2018 @ 11:11 am

By Bloomberg News

Guggenheim Partners' Scott Minerd has his eye on the yield curve and says it's not looking good.

"If you look at the historical path that we've been on, we are just around the point where we would be, let's say, maybe 22 months away from a recession," Mr. Minerd, chief investment officer at Guggenheim, said Wednesday at an insurance-industry conference held by S&P Global Ratings in New York. "That should be a red flag for people because if the Federal Reserve stays on its current course, it's very likely that the curve is going to continue to flatten."

The yield curve has been generally flattening as short-term rates rise faster than long-term rates. It's starting to approach levels that some analysts and strategists have said could worry policy makers because historically an inversion indicates a looming recession. The path of the U.S. curve is one of the greatest predictors of the credit cycle, Mr. Minerd said.

Mr. Minerd, whose unit oversaw about $246 billion as of March 31, said he's adjusted by upgrading the quality of the investment portfolio. His comments on the curve were echoed by fellow panelist, Tony James of the Blackstone Group.

"It's definitely a concern," Mr. James said, adding that Blackstone tends to stress-test its portfolio companies for a recession to make sure they're ready.

Mr. James, Blackstone's executive vice chairman, also detailed how technology is affecting the private equity firm from its investment process to its hiring practices. For example, Blackstone is using artificial intelligence to screen job applicants.

"It's affecting everything about our business and we're really trying heavily to lean forward into this," Mr. James said.

(More: Fidelity manager hasn't been this excited by bonds in five years)

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