Inverted Yield Curve on Treasury Bonds Presents Strong Possibility of Future Recession

Chris Gaetano
Published Date:
Dec 4, 2018
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On Monday, for the first time in 10 years, the yield spread between three- and five-year Treasury bonds has inverted, which some economists say is a sign of an impending recession, according to Bloomberg. What this means, essentially, is that the amount of money one can make from investing in a five-year bond is now slightly less than what one would get from a three-year bond, about -0.1 basis points. This is seen as a worrisome sign, as a bond yield inversion has preceded each of the last seven recessions, though Bloomberg noted that it's more of a distant omen than an immediate alarm bell. The last time this happened was in August of 2005, a full 28 months before the recession formally began. 

However, this news does track with other predictions that we shall see another recession within the next few years. A membership poll from the National Association for Business Economics, for instance, found that most think the next recession will happen in the year 2020. Analysis from JP Morgan, too, has pegged the year 2020 as the likely start of the next recession. 

A recent report from the U.S. Federal Reserve was generally sanguine about the current state of the economy, reporting that there have been many gains since the financial crisis, but it pointed to three potential areas where the economy might encounter trouble down the road: historically high assert valuations, business sector debt, and eroding credit standards. 

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