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Recession Watch: The Yield Curve is the Most Inverted Since the Early 1980s

January 19, 2023

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6:05 pm

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20 comments

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Economics

Treasury Yields from the New York Fed, chart by Mish

On the dismal retail sales report on Wednesday, the yield curve steepened towards deeper inversions.

*Treasury Yields from the New York Fed, inversion calculations by Mish*

Inversion Notes

2-year to 10-year spread: -0.69 Percentage Points
30-year to 3-month spread: -1.15 Percentage Points
10-year to 3-month spread: -1.32 Percentage Points

One has to go all the way back to the early 1980s to find inversions this deep.

Yield Curve to Scale

Signs Say Industrial Production Has Peaked and so a Recession is Imminent

In case you missed it, please see Signs Say Industrial Production Has Peaked and so a Recession is Imminent

Judging from dismal industrial production numbers, a recession is imminent if indeed it hasn’t already begun.

For the latest retail sales report, please see December Was Another Retail Sales Disaster, Even Worse With Negative Revisions

Not to worry. I’m sure it’s different this time.

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20 Comments

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Oldest Most Voted

Cocoa

3 years ago

The FED just follows private rates and keeps the margin between the discount and offered manageable. If they could cut rates to zero again they would but the system was choking on cash and banks were not lending. The dash for cash is back on. Inflation was a supply driven issue. Now we are going into another big recession

Billy

3 years ago

I just heard a theory that the Fed will do 1 last rise and keep it there for 5+years. The reasoning is that it would force a recession and for us to struggle out of it very slowly but at least we will have 5% of rates to use and defend against a depression. At that point the government will have some jobs rebuilding our long awaiting infrastructure.

If this comes true it will be the most responsible thing I have witnessed between the Fed and Government.

Six000mileyear

3 years ago

Reply to Billy

The 60 year interest rate cycle has come off its bottom. there are ~18 years of generally rising interest rates ahead. There will be some multiyear (4year cycle) interest rate swings along a parabolic path. The FED will be forced to abandon 5 for 5. As long as the FED keeps rates ABOVE what the bond market is doing, borrowing will be more rational than speculative.

Scooot

3 years ago

Reply to Billy

I’m not sure they’d be able to resist the pressure to cut them a little in election year, particularly if the economy is struggling. Maybe they’ll go a little higher at the outset to accommodate this? Also I doubt they’d look ahead over 5 years, it would be like trying to anticipate the weather, 5 months is hard enough at the moment.

Jack

3 years ago

Reply to Scooot

Governments cannot sustain high interest rates on their debt so doubt will stay long at all. Also once recession comes, politicians will be pressuring for more money printing.

These are the reasons for inversion.

8dots

3 years ago

About a decade ago u introduced clusters of gov rates since the 1990’s. There was a downtrend channel coming from the 3M and the 10Y hitting 2008 at zero.

Some clusters were wide and fat, with large spaces between them. Others had bottlenecks and narrow bands with rates tangled together, like a rope. In early 2022 the cluster was wide, trending up. It became narrow, before becoming wider again, where the 3M & the 1Y are at the top, hitting resistance. The 10Y at the bottom might turn around to form a new skinny cluster, before forming a new narrow rope…to hang the econ.

Dean2020

3 years ago

Everything says recession except those people with a vested interest in not labeling it a recession. It’s not a ‘used car’, it’s pre-owned. I’m not bald, I have challenged follicles. Our new culture says everyone gets a trophy so the politicians and our economic leaders can fail over and over and still claim victory as they continue to be rewarded.

Matt3

3 years ago

So what is a recession? When will this recession start?

Can we have a recession with positive (low or no) growth and fairly stable employment? Why were 2 negative GDP quarter in 2022 not a recession?

vanderlyn

3 years ago

Reply to Matt3

my question to mish and others. what is a recession. i hope it’s not the us government issued BS. that’s just too deliciously idiotic, imho. i like the classical definitions best. panics instead of depressions………….i still know NOT a soul who cannot find a job. and my benjamin in my pocket buys me less food and clothing and shelter than she did 2 and 5 and years ago.

Jack

3 years ago

Reply to vanderlyn

There has been so much money printing for so long, everyone has forgotten what a recession looks like.

People still insisting incomes never shrink – always go up.

Well, they do not go up when you have no work – unless there is more money printing like 2020-22.

Recessions are not fair to low income people who lost their jobs – need to help them with free money.

In the past recessions have come with widespread pain and families being scared for their future.

We are not there yet.

With chronic money printing we may never have another recession again – until everything collapses.

Tony Bennett

3 years ago

Lacy Hunt just dropped Q4 report.

One of the very few with a clue.

Matt3

3 years ago

Reply to Tony Bennett

Lacy Hunt is excellent and well worth listening to. I attended a 1 day presentation he gave to a small group (20 people). Very interesting. It is worthwhile to also go back and read prior reports. Like everyone, he isn’t always right. He’s a bond salesman. The long bond is always a buy.

MPO45

3 years ago

Reply to Tony Bennett

What no link? Sigh….

Salmo Trutta

3 years ago

Reply to MPO45

HIM2022Q4NP.pdf (hoisington.com)

Hunt’s Vi is endogenous, but Vi is a contrivance. Vt is exogenous. You get a surge in the money stock, then you get at the end an acceleration in velocity, typically for 3 months, but this time was a little longer due to dis-savings.

Salmo Trutta

3 years ago

Reply to Salmo Trutta

If Hunt would have followed the G.6 Debit and Deposit Turnover release, he would know these things.

G.6 Debits and Deposit Turnover at Commercial Banks (stlouisfed.org)

Scooot

3 years ago

Reply to MPO45

Here I think

https://hoisington.com/economic_overview.html

Memento.mori

3 years ago

Reply to Tony Bennett

Lacy is very knowledgeable and convincing.

I followed him and listen to him and he got the inflation totally wrong.

I lost money as a result of having listened to him.

hence, in all matters that are not scientific any prediction by experts is no more valuable than the tips you get from your taxidriver.

Lisa_Hooker

3 years ago

Reply to Memento.mori

My taxi driver is working an econ PhD at Wharton.

Tony Bennett

3 years ago

Disinflation / Deflation buzz words for 2023.

atryingshepherd

3 years ago

Down goes Frazier!

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Recession Watch: The Yield Curve is the Most Inverted Since the Early 1980s

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