Euro Dollar curve, Longest Contiguous Inversion in History, 3/1/19, Ian C. Burdette, CFA, CMT

1) even if you think they are going a way, Euro$s are still one of the most liquid markets on planet Earth.

2) inversions are rare but certainly not unprecedented.

3) yes, Euro$ inversions (like other curve cohorts) presage US recessions

4) I just picked ED5 less ED9 (currently Red March/EDH0 less Green March/EDH1) as an example but its currently on the longest inversion run in HISTORY at 80 sessions.

Since 1996:
- series max positive spread = 208.5bpts
- series min (or neg) spread = -14.5bpts
- series average = 54.35bpts ('normal' upward sloping curve)
- series standard deviation = 46.55bpts.. Currently 1.5 SD below mean.
- last level = -11.5bpts

5) the duration and the symmetry of the inversion is noteworthy. How does it revert to a more 'normal' shape? Bull steepening via Fed easing (not likely near term) or Bear steepening w/ the belly underperforming or Fed re engaging in hikes - 'if' we are to believe the risk bulls, this seems more likely. WE LIKE HEDGING DOWNSIDE in GREENS/FV/CASH 5s

6) long term time series of ED5 vs ED9:


Ian C. Burdette, CFA, CMT
Senior Managing Director