The Treasury yield curve just inverted, sounding the alarm for recession

[Mainecat]

The Treasury yield curve just inverted, sounding the alarm for recession

 

Dion Rabouin

Anchor

Yahoo FinanceDecember 3, 2018, 7:49 PM GMT

Federal Reserve Chair Jerome Powell

The bond market is beginning to sound the alarm of a recession, with an inversion in U.S. Treasury yields occurring on Monday for the first time since 2007.

The yield on the 5-year Treasury note fell below the yield on the 3-year note, meaning that investors were being paid more to hold U.S. government debt maturing in three years than comparable bonds maturing in five years. It’s not the major curve inversion that investors watch for — the 2-year note holding a higher yield than the 10-year note, which has preceded every U.S. recession since World War II — but it portends that the market is headed in that direction, analysts told Yahoo Finance.

 

Ian Lyngen, head of united rates strategy at BMO Capital Markets, said the inversion of 3- and 5-year yields has strengthened his belief that an inversion of the 2-year and 10-year yield will happen in late 2018 or early 2019.

“This solidifies not only my flattening bias but I think it will lead many players in the market who [expected the yield curve to steepen] to capitulate on that,” Lyngen said.

U.S. Treasury yields rose early on Monday after a deal between the U.S. and China to hold off on new tariffs. Shorter-dated yields rose faster than longer-dated yields, pushing the curve to invert between the 3- and 5-year yield.

The yield curve inverted between the 2- and 10-year yield before the recessions of 1981, 1991, 2000 and 2008. It has preceded all nine U.S. recessions since 1955, with a lag time ranging from six months to two years.

Analysts have pointed out that although many associate a yield curve inversion with recession, the phenomenon is a reflection of the kind of economic conditions that predict a market bust rather than being the cause of them.

An inverted yield curve is a sign investors think the government is less likely to pay back debt it owes in two years than what it owes in a decade — or in this case, the government is less likely to pay in three years than it is in five. Market analysts have pointed to everything from the increase in U.S. debt to cyclical factors like the market running out of steam as reasons for a downturn.

The combination of higher bond yields and the looming threat of recession is adding to fears about slowing global growth, investors said. It could also have implications for the Federal Reserve’s interest rate policy.

Fed Chair Jerome Powell said in a speech last week that U.S. interest rates were now “just below” the level that could be considered neutral and signaled that the Fed would stop raising rates. Investors viewed that as a stark turnaround from his remarks in October that the central bank was “a long way from neutral.”

Cameron Crise, macro strategist at Bloomberg LP, called the inversion “potentially the first shoe to drop in the end of the rate cycle.”

“Mind you, there can be a long delay between the first inversion of the   curve  and subsequent rate cuts, as the last cycle showed,” Crise said in a report for Bloomberg. “Still, it’s more evidence that we’re in the ‘late 2005’ analogue of the current Fed campaign.”

Fed officials have not spoken much about the possibility of a yield curve inversion, but earlier this year a number of members of the Fed’s rate-setting committee said it was a development they were watching.

“One of the most pervasive relationships in macroeconomics is that between the term spread — the difference between long-term and short-term interest rates — and future economic activity,” the San Francisco Fed’s Michael D. Bauer and Thomas M. Mertens wrote in March.

Atlanta Fed President Raphael Bostic even said in May that it was his job to prevent the curve from inverting, joining a number of other U.S. central bank bosses who had openly voiced concern about inversion.

https://www.yahoo.com/amphtml/finance/news/treasury-yield-curve-just-inverted-sounding-alarm-recession-194921816.html

[Angry ginger]

We are seeing soft numbers on servicing rights which is a sign than many on wall Street see a recession and therefore lower interest rates coming.  But our trump fan boys will continue to talk about dow at 30k

[Edmo]

28 minutes ago, Angry ginger said:

We are seeing soft numbers on servicing rights which is a sign than many on wall Street see a recession and therefore lower interest rates coming.  But our trump fan boys will continue to talk about dow at 30k

Ten years is a good run. This should be no surprise to anyone who’s paying attention.

[Mainecat]

49 minutes ago, Angry ginger said:

We are seeing soft numbers on servicing rights which is a sign than many on wall Street see a recession and therefore lower interest rates coming.  But our trump fan boys will continue to talk about dow at 30k

When you see bonds doing this you get nervous.

[Mainecat]

20 minutes ago, Edmo said:

Ten years is a good run. This should be no surprise to anyone who’s paying attention.

Trump has caused this mess.

[f7ben]

8 minutes ago, Mainecat said:

Trump has caused this mess.

you are such a fucking moron 

[Mainecat]

22 minutes ago, f7ben said:

you are such a fucking moron 

Ben read this then comprehend it....

An inverted yield curve is a sign investors think the government is less likely to pay back debt it owes in two years than what it owes in a decade — or in this case, the government is less likely to pay in three years than it is in five. Market analysts have pointed to everything from the increase in U.S. debt to cyclical factors like the market running out of steam as reasons for a downturn.

If Ya think the Trump trillion dollar tax cut had nothing to do with the above your drunk, high, dumb or Momo stupid.

[ActionfigureJoe]

2 minutes ago, Mainecat said:

Ben read this then comprehend it....

An inverted yield curve is a sign investors think the government is less likely to pay back debt it owes in two years than what it owes in a decade — or in this case, the government is less likely to pay in three years than it is in five. Market analysts have pointed to everything from the increase in U.S. debt to cyclical factors like the market running out of steam as reasons for a downturn.

If Ya think the Trump trillion dollar tax cut had nothing to do with the above your drunk, high, dumb or Momo stupid.

Trump traded a meager 1% increase in mfg for insane deficits. It’s going to be a bad one. 

[Anler]

So is the coming recession Obama's fault? 

[1jkw]

11 minutes ago, Anler said:

So is the coming recession Obama's fault? 

Yes.

[Zambroski]

15 minutes ago, Anler said:

So is the coming recession Obama's fault? 

Well, he is taking credit for all this so....it stands to reason..

[DriftBusta]

2 hours ago, Angry ginger said:

We are seeing soft numbers on servicing rights which is a sign than many on wall Street see a recession and therefore lower interest rates coming.  But our trump fan boys will continue to talk about dow at 30k

It’s those damn Trump fan boys.  Bond curve has been inverted for months, just like the talk of recession.  

[motonoggin]

Every 7-10 years. 

We're on year 8/9. 

 

[DriftBusta]

9 minutes ago, motonoggin said:

Every 7-10 years. 

We're on year 8/9. 

 

And par for the course, everyone is falling all over themselves trying to play soothsayer, if not hoping for the next recession.  And also of course, no one is talking about the Ds taking over the house and that positive impact on the markets.  *sarc*

[motonoggin]

I just wonder why we continue to cling to a system that breaks every decade or so and needs to be 'fixed' with money stolen from taxpayers. 

[ActionfigureJoe]

The economy tanks and trump is gone. The man has no redeeming qualities. He didn’t even make the fortune his father dribbled to him. A bad and pathetic man. 

Edited December 4, 2018 by ActionfigureJoe

[Mainecat]

9 hours ago, ActionfigureJoe said:

The economy tanks and trump is gone. The man has no redeeming qualities. He didn’t even make the fortune his father dribbled to him. A bad and pathetic man. 

Huge fail

[f7ben]

1 minute ago, Mainecat said:

Huge fail

He has been a huge fail.....no doubt. Hopefully he continues his trade policy though. That has been good

[Mainecat]

32 minutes ago, f7ben said:

He has been a huge fail.....no doubt. Hopefully he continues his trade policy though. That has been good

What trade policy?

[f7ben]

1 minute ago, Mainecat said:

What trade policy?

Derp derp derp derp derp

[ArcticCrusher]

Oh no's.