Markets
Recession is near
Karl W. Smith | 07 Dec 2018 00:30

By one measure, the yield curve inverted on Monday Dec 3: The interest rate on five-year Treasury bond slipped bleow the rate on three-year bonds. 

That's a worrying  sign because rates on longer-term bonds are typically higher than those on shorter-term bonds, and such inversions are associated with recessions.

So far, however, I would consider the yield curve only "partially" inverted. 

A full inversion would be interest rates on two-year Treasury bonds rise higher than rates on 10-year bonds. 

In the last 40 years, each time this has happened, the US economy has entered a recession soon afterwards. 

This makes an inverted yield curve the most reliable indicator macroeconomists have for pre
dicting a recession. The last two times the yield curve inverted, in 1998 and 2008, the debate among economists was whether this time would be different. In both cases, it wasn't.



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