Yield Curve Starts the Recession Clock

Discussion in 'Property Market Economics' started by GentleChief, 6th Dec, 2018.

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  1. GentleChief

    GentleChief Well-Known Member

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    Source - Bloomberg
    Bloomberg - Are you a robot?

    Brace yourselves everybody, a recession is coming! Sometime in the next, uh, two years.
    Or less. Or more.

    Earlier this week, interest rates on 3-year Treasury notes turned higher than 5-year rates for the first time since the dawn of the previous U.S. recession, back in 2007. This is called an inversion of the yield curve, or at least a small piece of the curve. The Big One will be when 2-year and 10-year Treasury rates swap places, and bond traders are doing their darnedest to make it happen soon, as Robert Burgess points out. That particular inversion has preceded every recession since the late 1970s. The thing is, as Bloomberg economist Michael McDonough notes in this chart, the yield curve is kind of a loooong leading indicator:

    Bloomberg - Are you a robot?
     
    Last edited: 6th Dec, 2018
  2. mickyyyy

    mickyyyy Well-Known Member

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    Been following this since the start of the year and with all inversions 86% of the time a recession has hit, also with each recession it required a 4% reduction in interest rate to make a meaningful impact to the economy...
     
  3. Andrew Allen

    Andrew Allen Well-Known Member Business Member

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    Without being dismissive of the pain that might arise I can point out that recessions can be excellent times for business and investment, less competition has it's advantages. I remember the early 90's recession we had to have (Paul Keating expression) and a few similar periods since then that technically didn't qualify but were pretty much the same thing.
     
  4. Waterboy

    Waterboy Well-Known Member

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    Denial is Not a River in Egypt
    survival of the fittest

    I remember during the GFC the finance company I worked for, picked up a lot of new business, never reduced headcount, in fact we kept hiring new people to deal with the new business opportunities.
     
  5. Waterboy

    Waterboy Well-Known Member

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    Aussie yields currently showing normal-looking curve, but there was a time not too long ago when 2yr yields were lower than 1-mo BBSW, it was a bit scary.
     
  6. Rex

    Rex Well-Known Member

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    That's quite a conundrum for Australia isn't it. At least the US can quit the trade war and has a bit of room to move on rates.
     
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