How The Yield Curve Predicted Every Recession For The Past 50 Years Description video: The yield curve was once just a wonky graph for academics and policymakers. But in recent years it has become a way to forecast looming recessions. […]
How The Yield Curve Predicted Every Recession For The Past 50 Years
The yield curve was once just a wonky graph for academics and policymakers. But in recent years it has become a way to forecast looming recessions. The curve has helped predict every recession over the past 50 years. That means the curve accurately predicted even largely unforeseen downturns like the dot-com bubble of 2001 and the Great Recession in 2007.\n\nAs a result, news of yield curve inversions can now send markets tumbling. Policymakers keep a close eye on even small changes in the curve’s composition.\n\nSo how did this simple graph showing U.S. Treasury bond interest rates grow into one of the most reliable recession indicators we have? And what does a yield curve inversion really mean?\n\n» Subscribe to CNBC: https://cnb.cx/SubscribeCNBC\n» Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision\n» Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic\n\nAbout CNBC: From ‘Wall Street’ to ‘Main Street’ to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.\n\nConnect with CNBC News Online\nGet the latest news: https://www.cnbc.com/\nFollow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC\nFollow CNBC News on Facebook: https://cnb.cx/LikeCNBC\nFollow CNBC News on Twitter: https://cnb.cx/FollowCNBC\nFollow CNBC News on Instagram: https://cnb.cx/InstagramCNBC\n\n#CNBC\n\nHow The Yield Curve Predicted Every Recession For The Past 50 Years
There is an inversion on the US bond yield chart
Key Indicator In US Bond Market Indicates Investor Concerns.
On the open market, the 10-year US Treasury yield was 1.488%, down 5.60 basis points on the day. They hit a three-year low of 1.443% on Monday.
The yield on the two-year notes was 1.531%, down 2.00 basis points. They dropped to 1.494% on Monday, their lowest level since September 2017.
The yield on 30-year US government bonds fell below the yield on three-month bonds. This situation, called the inversion of the yield curve, speaks to the fear of investors about the coming recession. It was observed before each of the last seven recessions.
Difference between 3-month Treasury notes and 10-year notes dropped to -53 basis points, the lowest level since March 2007.
Spread between 2-year and 10-year Treasury yields fell to -4.2 basis points, last seen in May 2007.
Bond traders see 10-year yields falling below 2-year yields as a noticeable signal of recession, while noting the unusual phenomenon as bondholders are better compensated in the short term. Until August, the last inversion of this portion of the yield curve was the one that began in December 2005, two years before the financial crisis and subsequent recession..
In an interview with Markets Insider, Nareit senior economist Calvin Schnor called the signal important but not defining. He said he prefers other indicators such as consumer spending and jobless claims, both of which have been strong in recent times. These indicators of future activity indicate that there are no signs of a slowdown in the economy, summed up Shnur.