Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, market sentiment suggests that the long-term outlook is poor and that the yields offered by long-term fixed income will continue to fall. Is this finally a trigger for a recession coming? Unemployment rates have been relatively low, high GDP, high earnings, etc. Are we on the cusp of the business cycle and looking to head downwards? How will this invert impact the economy?
https://www.bloomberg.com/news/articles/2019-03-22/u-s-treasury-yield-curve-inverts-for-first-time-since-2007?srnd=premium
2 comments:
THE SKY IS FALLING!!!!
Not quite. While the yield curve has inverted and as such will probably result in the start of a recession within 18 months most recessions are not like the last one. It seems to me that since so many people have been waiting for this event and now that it is finally happened many are now adjusting their portfolios accordingly. This rather responsible behavior is in sharp contrast to the inversion from 2007. At the time people dismissed it as unimportant and that no recession would occur, the proverbial "it's different this time" was a common phrase said. The markets, or at least the financial media, seem to have said "it's not different this time and you should be ready for a recession within 18 months." This differentiation of how people seem to address this matter suggests that people are preparing for it now and as such the impending recession will not be like the recession of 2008.
With the brexit deal looming over people's heads could this be the spark that ignites a big recession? It will be interesting to see how people react to the fallout. All the ingredients seem to point to a recession soon. Since unemployment is so low lots of firms are going to have to lay people off once production slows. The previous two recessions involved a yield curve invert. I do like what Greg said about people waiting for an event like this to occur and that people are preparing with caution. Now we just have to wait and see what will really be the trigger and how long the recession will be.
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