How the US yield curve compares to just before the financial crisis
What will be interesting to see is how the yield curve responds to changes in Fed policy. I will go into much more detail on this topic in upcoming remarks, but prior to the financial crisis it was actually the Fed raising short rates, without the long end rising in tandem, that triggered the inverted yield curve which preceded the last recession.
The financial crisis showed up in the yield curve, with rates falling since last month as investors fled to quality. The 3-month rate dropped from an already tiny 0.07 percent down to a miniscule 0.02 percent (for the week ending December 12), the lowest level since the Treasury constant maturity series started in 1982.
In comparison, the height of yield curve inversion before the financial crisis was around the turn of the year from 2006 into 2007. It’s tough to find the exact day but 2s10s maxed out in Nov 2006.
Every postwar recession in the US was preceded by an inversion of the yield curve, meaning that long-term interest rates had fallen below short-term interest rates, some 12 to 18 months before the.
This particular dreadful condition is normally coined as the "Yield Curve Inversion". This phenomenon had occurred earlier in 2007 which was just before the start of the global financial crisis.
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Another part of the US yield curve has inverted, meaning longer-dated interest rates are now lower than shorter-dated interest rates.. occurring just before the Global Financial Crisis hit.
But some analysts and investors say there is something that gets close – the US yield curve.. yield curve and a recession. It’s just an indicator.. before the last financial crisis.
The Fed in the US and other central banks have historically found themselves behind the curve and tend to do too little too late, as was the case during the Great Recession that started in 2008. Yield curves have now inverted in the US, in Australia, Canada, and a number of other advanced economies.
That makes 25 inversion combinations on the yield curve when the 3-month to 10-year spread first inverted before the Financial Crisis on January. In other words, more parts of the yield curve are inverted today than when the same indicator first signaled recession in the run-up to the Financial Crisis.
In other words, the 2-10 spread is again shrinking, reminding us that a flattening yield curve at the tail-end of an economic. Ironically, the next big financial crisis may not be due to.
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