Recession building? US yield curve flashing red

Buckle up for a rough ride
Buckle up for a rough ride
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There may be noises about a strong US economy and US Fed officials reaffirming their plans to stick to their rate increase path.

But not all are working out according to plan.

A key parameter is starting to crack, which are sowing seeds of doubt among investors. Market watchers are talking about a looming recession as the yield curve is getting inverted. In fact, they have history on their side.

 What really happened
What really happened
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The gap in interest rates -- also called spread -- between 2-year and 10-year Treasury securities narrowed to its smallest in more than a decade, going below 0.15 percentage point. In fact, one section of the yield curve has already inverted: between 3-year and 5-year notes. The spread between the two dropped to negative 0.01 percentage point on Monday, the first time that has happened since 2007.

Shock value
Shock value
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That gap, or “spread,” is regarded as a key benchmark among some central bank officials for mapping recession risks and weighing investor expectations about the future. Its sudden narrowing on Monday could throw the Fed's plan into disarray.

Straight from horse's mouth
Straight from horse's mouth
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ET Online

Dallas Federal Reserve bank president Robert Kaplan calls a spade a spade. One who looks at the yield curve several times a day, he said the narrow gap between two-year and 10-year Treasuries reflects expectations of sluggish global growth.

Time to stay calm?
Time to stay calm?
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Fed vice-chair Randal Quarles said the central bank, while “data dependent,” is following a strategy that would not be thrown off course by “every wavering” of economic statistics, Reuters reported. That strategy has led the Fed to raise interest rates, with a hike expected in December and three more in 2019.

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