US Treasury Yield Predicts Looming Recession For The First Time Since 2007

Financial experts are now warning that the economy is heading in a dangerous direction after the US bond market flashed its biggest signal yet that a recession could be hitting the United States within the next year. 
There is one significant change that has happened to the markets ahead of the last seven US recessions, and it happened once again today.
For the first time since June 2007, the spread between the 2-year Treasury yield and the 10-year Treasury yield flipped, making the 2-year mark higher than the 10-year mark. Markets rely on the yield curve because it shows how much yield investors are willing to accept to lend the US government money.
The Treasury’s yield curve becomes inverted when long-term bond yields fall below short-term. And while other parts of the curve have already inverted, reports noted that this specific inversion “has occurred ahead of every US recession dating back to 1967. On average, it has taken 16 months for the predicted recession to hit.
Also on Wednesday, the Treasury’s 30-year bond yield fell to 2.015 percent for the first time ever. The previous record was a low of 2.08 percent in 2016, which came days after the UK passed a referendum to leave the European Union.
Many are concerned about the future of the US-China trade war, and how it will impact the global economy, as the possibility of peace talks remains uncertain. In a note to its clients, Bank of America’s head of US economics said, “Our official model has the probability of a recession over the next 12 months only pegged at about 20 percent, but our subjective call based on the slew of data and events leads us to believe it is closer to a 1-in-3 chance.
In response to criticism regarding a new round of tariffs against China that would specifically target consumer goods, the Trump Administration is partially backing off. In a statement, the US Trade Representative said, “Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent.”
However, consumer products that include cell phones, laptop computers, video games, and certain toys will still face new tariffs—they have just been delayed until December 15.
As for markets here in the US right now, the Treasury’s yield curve inversion does not guarantee that there will be a recession in the coming months. But because it does have a record of successfully predicting recessions in the past, many believe it could serve as a wakeup call for Wall Street.
Advertisements

Posted by

Rachel Blevins is a journalist who aspires to break the left/right paradigm in media and politics by pursuing truth and questioning existing narratives.

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.