When there is yield Inversion; 10Yr Maturity Minus 2Yr Maturity of treasury bond yield is going to negative (e.g 2Yr yield is already higher than 2Yr yield) = Recession in the US. It has been frequently quoted that this is almost 100% accurate in the past. They are already very close to zero
Also FED already warns about the possibility that US economy will go into recession.
The yield curve inversion is known to predict all 5 out of the last 4 recessions.
Its accuracy rate, while nowhere near 100%, is pretty good; most recessions of the last century were preceded by an inversion. But the opposite isn’t true; an inversion very unreliably predicts a recession.
Reminds me of correlation does not equal causation. That being said I am an overall bear in this environment. Will be interesting too see what next few months and years bring
One funny thing about predictions in general is that it causes change of measures and attitude leading to the actualisation of the prediction itself imo
How did it predict 5 out of 4🙃
1 Like
That’s the joke. Basically most recessions are preceded by an inversion, but most inversions don’t actually give place to a recession. Hence why it is known as a recession indicator “predicting 5 out of the last 4 recessions”.
6 Likes
Bond Yield Inversion; 10Yr Maturity Minus 2Yr Maturity of treasury bond yield is going to negative (e.g 2Yr yield is already higher than 2Yr yield) leading to recession is just the past event it will not necessary prevail this coming year.
Also in the past the recession normally came around 12-18 month after the yield inversion, not immediate.
Also as the recession is defined a recession is two consecutive quarters of negative economic growth measured by a country’s gross domestic product (GDP). So even if the recession is started today, the earliest we now for sure that the US economy in recession is after 6 months from now.
This is another article from Market watch regarding Bond Yield Inversion and recession. Yield curve a reliable economic indicator, but a poor market timing tools.
“In fact, the median return of the S&P 500 index from the date in each cycle when the yield curve inverts to the market peak is 19%.” (See table below.)
That last entry on the chart is a bit of a joke. Like it’s trying to say the yield curve inverting caused covid. No its not a bit of a joke - it’s actually laughable to include that.
2 Likes
Among bad news, e.g New variant of Omicron was found in the UK, the good news is that Yield inversion 10Yr Minus 2Yr Maturity has been reverses, it is now above zero.
In the past this yield inversion is used to predict recession in the US. It is almost certain when the recession happen in the US it will spread around the world due to the size of US economy and global interconnection.
As the recession is defined a two consecutive quarters of negative economic growth measured by a country’s gross domestic product (GDP). Even if the recession has started today, the earliest we could now for sure that the US economy in recession is after 6 months from now. But in the past the recession normally came around 12-18 month after the yield inversion, not immediate. In fact the Yield inversion just happened it might signal that recession might come much later than usual.