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    Banking Insights

    Recession Indicator ~ The Inverted Yield Curve

    8/27/2019

     
    Picture
    Today we reached a definitive milestone, as it relates to the 10yr / 2 Yr Inverted Yield Curve.

    ​Although it has inverted several times during the past week, the inversion has been for only a short period of time.

    Picture

    As illustrated below, both the 10Yr and 2 Yr have been quite strong today; the Two Year is fully 4 basis points below the 10 Yr.
    Picture
    Source: The Wall Street Journal
    Shown graphically below, the entire Yield Curve is inverted well beyond the 10 Yr.
    Picture
    Source: The Wall Street Journal

    Below is the Fed's favored recession indicator - the 3 Mo / 10 Yr Yield Curve, which has been inverted for a couple of months.
    Below is the Market's favored recession indicator - the 2 Yr / 10 Yr Yield Curve, which has finally put in a more permanent appearance. As clearly indicated, the 2 Yr / 10 Yr inversion has preceded each recession in the last 40 years. Whereas, as you can see, the 3 Mo / 10 Yr has been relatively consistent but failed to give an appropriate signal in the very critical 1980 recession, one of the most vicious in the past century.  


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    • Who We Are
      • Firm's Founder and History
      • Officers
    • Who We Serve
      • Who Are Our Clients
    • What We Do
      • Asset / Liability Management >
        • Budgeting
        • Performance Analysis
        • Forecasting
        • Quality Control
        • ALM Board Reporting >
          • The Directors' Financial Digest
          • The Executive Management Series
          • The Account Level Forecasting Series
        • Alternative Planning Scenarios
      • Interest Rate Risk >
        • Reporting for Interest Rate Risk
        • Assumptions & Back-Testing
      • Portfolio Management & Accounting >
        • The InvestWise Reporting Series >
          • Portfolio Management Series
          • Financial Management Series
          • Econometric Series
        • "Total Return" Investment Strategy
      • Liquidity Risk Management
      • Capital Adequacy & Analysis
      • Dynamic Strategic Planning
      • Comprehensive Funds Management Policy
      • CECL Overview >
        • Historical Analysis
        • "Currently" Identifiable Risks
        • "Specific" Potential Risks
        • Potential "Future" Risks
        • Traditional Reserves vs CECL
      • General Consultation >
        • Holding Company Systems
        • Balance Sheet Pricing Strategies
        • Regulatory Reporting
    • What Our Clients Say
    • How We Interface
      • What happens when we become a Client?
      • How are Fees Determined?