NEW YORK (Reuters) - Goldman Sachs analysts said on Thursday concerns about a U.S. yield curve inversion among traders as an omen of a looming recession are “overblown,” though an inversion is often followed by a 3 percent to 5 percent drop in the S&P 500.
The yield curve, or the yield difference between shorter- and longer-dated Treasuries, is at its flattest in more than a decade on expectations of further rate increases from the Federal Reserve and inflation staying tame.
A curve inversion occurs when shorter-dated yields rise above longer-dated yields as traders worry that short-term borrowing costs become too high, resulting in an economic slowdown.
“While we would consider a significant inversion of the Treasury curve a bearish signal, we think such concerns are currently misplaced,” Goldman analysts Charles Himmelberg and Matthieu Droumaguet wrote in a research note.
While Goldman and some Federal officials have downplayed the risk of a curve inversion, others including analysts at JPMorgan have sounded the alarm.
Reporting by Richard Leong; Editing by Steve Orlofsky