1/5
We have argued the yield curve inverts from the "inside out."
*First is the 10y/7y (cyan). This inverted a few days ago.
* Then 10-y/5y (red), now at 0.
* Next is the 10-y/3y (orange), also at 0.
We have argued the yield curve inverts from the "inside out."
*First is the 10y/7y (cyan). This inverted a few days ago.
* Then 10-y/5y (red), now at 0.
* Next is the 10-y/3y (orange), also at 0.
2/5
This continues until the 30y/FF inverts and can take several months.
As the next chart shows, once the 10y/5y yield curve inverts, the other curves typically follow suit.
With the 10y/5y curve at 0, this indicator is on the verge of signaling a full inversion is coming.
This continues until the 30y/FF inverts and can take several months.
As the next chart shows, once the 10y/5y yield curve inverts, the other curves typically follow suit.
With the 10y/5y curve at 0, this indicator is on the verge of signaling a full inversion is coming.
3/5
And once the 10-year to 3-month yield curve inverts for at least 10 consecutive days, it has a perfect track record in forecasting recession back to the 1960s (the 1998 inversion was only three separate days).
And once the 10-year to 3-month yield curve inverts for at least 10 consecutive days, it has a perfect track record in forecasting recession back to the 1960s (the 1998 inversion was only three separate days).
4/5
Every time the curve inverts, calls of "this time is different" are made and it will not signal a recession.
In 2018 the Fed even invited two economists to speak at the FOMC meeting (a rarity) to tell them not to worry the inversion.
federalreserve.gov/econres/notes/…
Every time the curve inverts, calls of "this time is different" are made and it will not signal a recession.
In 2018 the Fed even invited two economists to speak at the FOMC meeting (a rarity) to tell them not to worry the inversion.
federalreserve.gov/econres/notes/…
5/5
The US was in recession 10 months later.
So, yes, at one point this indicator is not going to work. Maybe the Fed "ruined it" with years of QE and a $9T balance sheet. But note "it's not going to work" is the argument every time.
Remember, the curve in not inverted...yet.
The US was in recession 10 months later.
So, yes, at one point this indicator is not going to work. Maybe the Fed "ruined it" with years of QE and a $9T balance sheet. But note "it's not going to work" is the argument every time.
Remember, the curve in not inverted...yet.
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