Yield Curve Screams "Recession" as Trade War Picks Up Steam

-edited

Futures pick up where they left off Friday with equity prices and bond yields lower.

Sunday Evening Futures

  • Equities Down
  • Gold Up
  • Treasury Yields Down

As of 1:36 AM Central on Monday morning, the 30-year long bond is a record low 1.942%.

It's now inverted 17.8 basis points with the Fed Funds rate.

The 5-year note is a whopping 78.4 basis points inverted.

Few seem to believe it, but the yield curve is now screaming recession.

Mike "Mish" Shedlock

Comments (11)
No. 1-7
Six000mileyear
Six000mileyear

There is a huge arbitrage opportunity due to the inverted yield curve: Borrow for 5 years and lend for 3 months. When the yield curve normalizes, pay back the money borrowed for 5 years early.

shamrock
shamrock

He pulls the puppet strings again this morning. "Trade talks to resume" and joy is spread on wall street and throughout the land.

njbr
njbr

Trump--"it's all OK now"

China--"WTF you're talking about Willis?

Tony Bennett
Tony Bennett

Washington Post ran a story a few days ago on an internal White House report earlier this month showing the economy slowing (but no recession) before election. Probably explains DJT floating balloon on tax cut to payroll and capital gains.

In the next few months put me down for:

Conditions deteriorated quicker and sharper than expected.

Flatlaxity
Flatlaxity

It seems that much of the interest rate decrease and inversion is due to increased foreign purchases of treasury notes and bonds. My search for data to prove this has been limited, but I see that major foreign holdings of US govt securities has increased $400 billion from June 2018 - 2019. I've got to believe that in spite of all the US economic turmoil with China and the dragged-out coming recession that our paper, which carries a positive interest rate, is not attractive to offshore buyers.

Blurtman
Blurtman

Keep the party going!

JonSellers
JonSellers

What we are seeing is a flight to safety due to the increasing value of the dollar on world markets, due to the Fed's interest rate policy and the China trade war.

This is extremely dangerous. I've read that around 2/3 of all debt outside the Eurozone is denominated in US dollars. As the value of the dollar increases, debt payments in emerging markets get more difficult. That causes a self-reinforcing spiral of decreased liquidity for EMs, more rush to safety, higher increases in the dollar, etc...

So Trump needs to tamp down the rhetoric and the Fed needs to cut interest rates. Otherwise we could see a new debt crisis in the 3rd world and find out how many first world banks are on the hood for those debts. And China being counted as an EM, means Chinese debts could blow up the world.