Recession Incoming or Something Worse? 2/10 Spread Collapses

Recession Incoming or Something Worse? 2/10 Spread Collapses by TOM LUONGO – Gold, Goats and Guns

UPDATE: Now stocks are selling off and the 2/10 spread is less than 10 basis points.  Gold, however, refuses to sell off while the euro pulls back versus the dollar.

Mike Shedlock over at Mishtalk noted yesterday that there have been a couple of troubling inversions in the U.S. yield curve recently.  They happened in the 2/3 and 3/5 year space.

Mike went on to say that the normal recession indicator, the 2/10 spread, may not invert before the economy turns down.

For further discussion, please see First Inversion in Seven Years: Can a Recession be Far Off?

I repeat my assessment:

  • The classic recession signal that most follow is a 2-10 inversion. I doubt we see a 2-10 inversion before recession hits.
  • My call: There will not be the warning nearly everyone is waiting for

I don’t mean to rain on Mike’s parade, because I fundamentally agree with him that the Fed is raising rates into a global slow-down but the 2/10 spread is collapsing this morning pretty quickly.

Since Friday it’s gone from 21 basis points to just 13.

Date 2 year 10 year 2/10 Spread
11/30/2018 2.8 3.01 0.21
12/2/2018 2.833 3.039 0.21
12/3/2018 2.823 2.973 0.15
12/4/2018 2.827 2.953 0.13

Or put another way:

2-10 spread US Treasury.png

There’s been a lot of talk about the flattening yield curve this year, specifically the 2/10 spread because of its centrality to the lending industry.  To put 13 basis points in context that’s by far the lowest of the year.  And it looks today like it will continue to flatten.

So, the U.S. Treasury markets are moving quickly to a new state.  All talk of a bond rout is over as spreads between U.S. and core European debt widened all year to create an attractive yield play.

US-German 10 year spread

But notice how it’s flattened in recent weeks as ‘flight-to-quality’ concerns have gripped markets, most likely over Brexit worries but I think it’s deeper than that.  The movement in these markets and gold tell me the worries over France’s protests, Italy’s refusal to bend the knee and growing concerns over Trump’s viability now that the Democrats have control of the House are growing.

Continue Reading / Tom Luongo>>>

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Rory Hall, The Daily Coin. Beginning in 1987 Rory has written over 1,000 articles and produced more than 300 videos on topics ranging from the precious metals market, economic and monetary policies, preparedness as well as geopolitical events. His articles have been published by Zerohedge, SHTFPlan, Sprott Money, GoldSilver, Silver Doctors, SGTReport, and a great many more. Rory was a producer and daily contributor at SGTReport between 2012 and 2014. He has interviewed experts such as Dr. Paul Craig Roberts, Dr. Marc Faber, Eric Sprott, Gerald Celente and Peter Schiff, to name but a few. Don't forget to visit The Daily Coin and Shadow of Truth YouTube channels to enjoy original videos and some of the best economic, precious metals, geopolitical and preparedness news from around the world.