311 Days: Recession Countdown Begins

Written by Staff Writer

Recession CountdownRecession Countdown Begins: Treasury Yield Curve Inverts For First Time In 12 Years; 30Y Yield Drops To All Time Low -Zero Hedge
"While many have noted the inversion of the 3m-10Y segment of the US Treasury curve, mainstream investors appear more focused on the spread between 2Y and 10Y yields... and that has just inverted for the first time since May 2007...The strongest recessionary signal yet, and equity markets appear to be waking up what this all means....As Jim Grant noted recently, the spread between the 10-year and three-month yields is an important indicator...

On six occasions over the past 50 years when the three-month yield exceeded that of the 10-year, economic recession invariably followed, commencing an average of 311 days after the initial signal....The biggest recession risk today centers around the trade dispute between the US and China. Trade disputes have the potential to be very disruptive and contractionary and can operate through a number of channels, such as trade volumes and production, currencies and prices and asset markets. The biggest vulnerability for the US is the equity channel since the market value of equities relative to income and GDP is at record highs, providing consumers with vast sums of liquidity and wealth. If the imposition of new tariffs and the uncertainty over what may follow triggers a de-risking and rush to exit, sparking a sustained 25% to 30% correction in the equity market, that by itself could trigger a recession as it would deal a substantial blow to consumer liquidity and wealth, and an abrupt and sharp decline in spending and confidence."