Recession May Be Closer Than We Think
Bond Trends are Nearing Concerning Levels
Cristal M Clark
As much as no one wants to think about this, several indicators are in fact pointing to our next recession and two very important trends are showing clear signs that a recession is looming. Known as the yield curve, the spread between the 2-year and 10-year US treasury bonds, has narrowed to just 17 basis points, its lowest level since June 2007.
This means simply that if the gap narrows much further it would cause an inverted yield curve, which is a result that traders believe there is more uncertainty in the two-year time frame than there is over a 10-year time frame. While some really do not care about the possibility of an inverted yield curve, the reason we all should is because an inverted yield curve has preceded every recession in the past 60 years.
Making matters worse, European 10-year bond yields are actually hitting the negative. According to Reuters, the volume of eurozone government bonds with negative yields reached a nine-month high in January of nearly $3.4 trillion, or close to 40% of the total value of all European government bonds on the Tradeweb platform.
Respectively, German and French 10-year bond yields have sunk below 0.07% and 0.5%, while Danish and Spanish yields have also shrunk to about 0.2% and 1.2% each, all reaching two-year lows. Then we have Italian 2-year and 10-year bond yields that have fallen to their lowest levels since the middle of last year. And finally, Portugal’s 10-year bonds yield just 1.35%, at least a 20-year low.
Investors do not like these sorts of numbers, the last time the world hit a recession they more or less took shelter in bonds and central banks cut interest rates to boost growth and printed money to buy bonds, pushing up bond prices and lowering yields.
Many individuals are still catching up from the likes of the last recession where million’s spent months without work, lost homes, cars, everything. Quite frankly the world including the US needs to get its shit together in terms of economics and stop bringing us all to the brink of economic ruin.
Cristal M Clark