Tag Archives: inverted yield curve

Recession Signal Getting Louder: 5-Year Yield Inverts With 3-Month Yield

The yield curve is inverted in 11 different spots. The latest is 5-year to 3-month inversion.

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The yield curve recession signal is louder and louder. Inversions are persistent and growing.

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Let’s compare the spreads today to that of December 18, the start of the December 2018 FOMC meeting.

Yield Curve 2019-02-26 vs December and October 2018

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Yield Curve Spread Analysis

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Spread Changes

  • Yellow: Spreads Collapsed Since October (1 Month to 5 Years)
  • Pink: Spreads Remained Roughly the Same (7 Year)
  • Blue: Spreads Increased (30-Year and 10-Year)

Something Happening

Something is happening. What is it?

https://www.zerohedge.com/s3/files/inline-images/2019-02-27_5-51-51.jpg?itok=EnviRvls

Possibilities

  1. The bond market is staring to worry about trillion dollar deficits as far as the eye can see
  2. The bond market has stagflation worries
  3. The bond bull market is over or approaching

My take is number one and possibly all three.

An in regards to recession the economy is weakening fast.

Source: by Mike Shedlock via MishTalk| ZeroHedge

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Core US Factory Orders Suffer Worst Slump In 3 Years

US core factory orders (ex transports) fell for the second month in a row in December. This is the worst sequential drop since Feb 2016.

New orders ex-trans fell 0.6% in Dec. after falling 1.3% the prior month.

https://www.zerohedge.com/s3/files/inline-images/2019-02-27_7-13-00.jpg?itok=bUbibSEj

The headline factory orders rose 0.1% MoM (well below the 0.6% MoM gain expected).

Capital goods non-defense ex aircraft new orders for Dec. fall 1% after falling 1.1% in Nov.

Non-durables shipments for Dec. fall 1% after falling 2% in Nov.

Not a pretty picture, but it was an 8.0% drop in Defense spending that triggered the weakness – so we’re gonna need moar war.

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Why You Should Care About The Narrowest Yield Curve Since 2007

Money manager Michael Pento is sounding the alarm because we are getting very close to something called a “yield curve inversion.” Pento explains, “Why do I care if the yield curve inverts? Because 9 out of the last 10 times the yield curve inverted, we had a recession… The spread with the yield curve is the narrowest it has been since outside of the start of the Great Recession that commenced in December of 2007… The last two times the yield curve inverted, we had a stock market drop of 50%. The market dropped, and the S&P 500 lost 50% of its value.”

For those who don’t have enough money to require professional management, consider storing water and food because that will never go out of style.

Source: by Greg Hunter | USAWatchdog.com

China Says “Don’t Panic” As Yield Curve Inversion Deepens Amid Liquidity Collapse

The curious case of the inverted yield curve in China’s $1.7 trillion bond market is worsening as WSJ notes that an odd combination of seasonally tight funding conditions and economic pessimism pushed long-dated yields well below returns on one-year bonds, the shortest-dated government debt.

10-Year China bond yields fell to 3.55% overnight as the 1-Year yield rose to 3.61% – the most inverted in history, more so than in June 2013, when an unprecedented cash crunch jolted Chinese markets and nearly brought the nation’s financial system to its knees.

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user3303/imageroot/2017/06/11/20170613_china2_0.jpgThis inversion is being exacerbated by seasonally tight funding conditions.

June is traditionally a tight time for banks because of regulatory checks, and, as Bloomberg reports, this year, lenders are grappling with an official campaign to reduce the level of borrowing as well.

Wholesale funding costs climbed to the most expensive in history, and the 30-day Shanghai Interbank Offered Rate has jumped 51 basis points this month to the highest level in more than two years.

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And this demand for liquidity comes as Chinese banks’ excess reserve ratio, a gauge of liquidity in the financial system, fell to 1.65 percent at the end of March, according to data from the China Banking Regulatory Commission. The index measures the money that lenders park at the PBOC above and beyond the mandatory reserve requirement, usually to draw risk-free interest.

“Major banks don’t have much extra funds, as is shown by the excess reserve data,”
analysts at China Minsheng Banking Corp.’s research institute wrote in a June 5 note. Lenders have become increasingly reliant on wholesale funding and central bank loans this year, they said.

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As The Wall Street Journal reports, an inverted yield curve defies common understanding that bonds requiring a longer commitment should compensate investors with a higher return. It usually reflects investor pessimism about a country’s long-term growth and inflation prospects.

“But the curve inversion we are seeing right now is one with Chinese characteristics and it’s different from the previous one in the U.S.,” said Deng Haiqing, chief economist at JZ Securities.

The current anomaly in the Chinese bond market is partly the result of mild inflation and expectations of a slowing economy, Mr. Deng said. “At the same time, short-term interest rates will likely stay elevated because the authorities will keep borrowing costs high so as to facilitate the deleveraging campaign,” he said.

Notably, it appears officials are concerned at the potential for fallout from this crisis situation.

In an article published Saturday, the central bank’s flagship newspaper, Financial News, said that the severe credit crunch four years ago won’t repeat itself this month because the central bank will keep liquidity conditions “not too loose but also not too tight.”


Chinese financial markets tend to be particularly jittery come June due to a seasonal surge of cash demand
arising from corporate-tax payments and banks’ need to meet regulatory requirements on capital.

On Sunday, the official Xinhua News Agency ran a similar commentary that sought to stabilize markets expectations. “Don’t panic,” it urged investors.

Sounds like exactly the time to ‘panic’ if your money is in this.

Source: ZeroHedge