Saturday, October 13, 2018

You never know

FRED Blog looks at the yield curve (11 Oct) and says:
This FRED graph effectively illustrates that every recession since 1957 has been preceded by a yield curve inversion...

In December 2013, the spread between long and short rates was very close to 3 percent. In September 2018, the spread was 0.44 percent for the 10-year and 1-year yields and 0.87 percent for the 10-year and 3-month yields. If the yield curve were to continue its downward trend from its previous high in December 2013, the yield curve would invert in August 2019 (using the 10-year and 1-year yields). Historically, this would predict a recession sometime in 2020.
Here's the graph from the FRED Blog:


Below, the same monthly data, red and blue, only since January 2017. Plus, I added the daily data, purple and green, for the same interest rates.


Both dailies show increase since the end of August. Even the monthlies have gone flat.

Yes, for sure, the dailies run uphill and down. And yes, it looks like the dailies may now be ready to go down for a month. But nobody knows. Maybe they're taking a breather, and they're gonna go up for another month or six.

One other thing. On the first graph you can see that the yield spread went below 1% in 1995 and stayed pretty darn low for 5 or 6 years before the recession hit.

You know what else happened for those 5 or 6 years? The economy was pretty darn good.

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