Jan 29, 2020

U.S. Treasury yield curve inverts again

Data: Investing.com; Chart: Chris Canipe/Axios

The U.S. Treasury yield curve between 3 months and 10 years inverted on Monday, as it has before every recession in the past 50 years. Inversion has been a false signal just once in that time.

What it means: When yields on short-dated Treasury notes (typically 3-month bills to 2-year notes) climb above longer-dated ones, it signals short-term borrowing costs are more expensive than longer-term loan costs.

  • As Reuters' Dhara Ranasinghe and Sujata Rao note, "Under these circumstances, companies often find it more expensive to fund their operations, and executives tend to temper or shelve investments. Consumer borrowing costs also rise and consumer spending, which accounts for more than two-thirds of U.S. economic activity, slows."
  • "The economy eventually contracts and unemployment rises."

Timing: The yield curve has inverted six to 24 months before every U.S. recession and it typically reverts to normal before the recession comes.

  • It first inverted in March.

Go deeper: The Treasury yield curve has steepened for all the wrong reasons

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Coronavirus fears slam the stock market

Photo: Johannes Eisele/AFP via Getty Images

Stocks saw the worst sell-off in months on Friday: the Dow Jones Industrials Average dropped 603 points (2.1%), while the S&P 500 and the Nasdaq declined 1.7% and 1.5%, respectively.

Why it matters: Despite a few jitters, the stock market had until now mostly brushed off fears about the coronavirus (the bond market, though, has not) as stellar earning results from big names like Apple, Microsoft and Amazon took center stage.

Recession fears return to the market

Data: U.S. Treasury; Chart: Naema Ahmed/Axios

Growing worry over the widespread outbreak of the Wuhan coronavirus is compounding an already jittery market and flipping the switch from risk-on to risk-off, as investors sell stocks and buy bonds.

Driving the news: The S&P 500 posted its biggest single day percentage loss since October and long-dated U.S. Treasury yields fell, putting yields on Treasury bills that mature in three months just 6 basis points below Treasury notes maturing in 10 years.

Go deeperArrowJan 28, 2020

Skull analysis technique shows 70% chance of recession in 2020

Illustration: Eniola Odetunde/Axios

There is a 70% chance of recession within the next six months, according to a new recession indicator that examines the economy using a method previously used to analyze the resemblance of human skulls.

What it means: The new indicator comes from researchers at State Street Associates and MIT's Sloan School of Management who applied the principle of Mahalanobis distance to create a predictor of economic booms and recessions they call the KKT Index of the Business Cycle.