Recession on the way soon - Inverted Yield Curve.

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Recession on the way soon - Inverted Yield Curve.

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2019 Mar 23, 10:21pm 1,525 views 8 comments

https://www.forbes.com/sites/simonmoore/2019/03/23/the-yield-curve-just-inverted-putting-the-chance-of-a-recession-at-30/#22f4243113ab

The Yield Curve Just Inverted, Putting The Chance Of A Recession At 30%
The interest rate on the U.S. Treasury 10-year bond just fell below the rate on the 3-month bill in response to the Fed's March announcement. This is called yield curve inversion as defined by Arturo Estrella and Frederic Mishkin. It implies a 25-30% probability of a recession on a 12-month view. Their research can be found here.

As economic relationships go, the yield curve has a good track record. You can see the data below going back to 1982. Per the chart, using this series over recent history the yield curve inverts before a recession reliably with no false positives. An impressive record. The blue line shows the spread between 10-year and 3-month interest rates. The black line is the zero bound. The shaded grey periods are historical recessions. Note that there is a lagged relationship here, recession historically occurs 6-18 months after inversion. So today's yield curve suggests a fair chance of a 2019-2020 recession.

Comments 1 - 8 of 8 Search these comments

1 alpo 2019 Mar 23, 10:22pm

So whats happening? Recession on the way? I think I need to stop paying down my mortgage and spruce up my emergency fund from $50K to $80K before the recession hits and I loose my job.

rocketjoe79 2019 Mar 23, 10:55pm

Please, please let me get a sweet severance package, pretty please?

Eman 2019 Mar 24, 7:37am

What a worthless article to read.

4 anonymous 2019 Mar 24, 7:48am

Bond Market Flashes Recession Warning Before Round of Auctions.

Ten-year U.S. yield is below 3-mo. rate, first time since 2007 - Note sales totaling $131 billion to test demand as yields fall

Investors are about to absorb $131 billion of Treasury note auctions at the lowest yields in months, after they piled into U.S. debt following a dovish Federal Reserve decision and fresh signs that global growth is weakening.

The week kicks off with a closely watched segment of the U.S. yield curve foreshadowing a recession: The gap between 3-month and 10-year rates is now negative. In the lead-up to the economic downturn that began late in 2007, this part of the curve initially flipped to inverted in early 2006. The curve’s latest collapse came amid reports showing weakness in France and Germany, while an index of American manufacturing slowed.

https://www.bloomberg.com/news/articles/2019-03-24/bond-market-flashes-recession-warning-before-round-of-auctions?srnd=premium