What's Going Down with Interest Rates?

Financial headlines are screaming about the "inverted yield curve". This is what it looks like:

Source: Federal Reserve Economic Data

The chart above shows the 10 year Treasury Note yield minus the 13-week Treasury Bill yield since 1962. All the blue peaks are periods when the 10 year rate was higher than the T-Bill rate. There are a handful of instances when the 10-year fell below the T-Bill including the last fifteen days as of this writing (Can you see it? It's a sliver on the far right bottom of this chart.)

Source: Federal Reserve Economic Data

According to today's data download from the Federal Reserve the "constant maturity Two-Year Treasury Note" has not been above the Ten-Year since 2007. 

Source: Federal Reserve Economic Data

What does this short rate "crossover" of the long rate really mean? In my view, it means nothing. It may coincide with stock market breaks but I don't see that they "cause" or forecast anything. Here are the Treasury rates with the S&P 500:

Source: Federal Reserve Economic Data and Yahoo Finance Data

The 1980 Volcker Crisis, the 2000 dot-com bust, the 2009 financial crisis all coincided with short-term rates rising above the long-term BUT they had NO lasting effect.

It may be that long-term investors have only been lucky for the last 200 years or so that US stock markets have been resilient and able to overcome wars, crises and even buffoons in government. Yes, we may be sorely tested today but the test of time is on the side of long term buyers.