While the yield curve, which shows the relationship between bond yields, shows the same pattern before every recession, especially in the US economy, the difference between 2-year and 10-year bond yields has reached its most negative level since when Ronald Reagan was President of the United States in 1981.
In the $24 trillion bond market, investors closely monitor parts of the yield curve kakım indicators of recession, the difference between the 2-year bond yield and the 10-year bond yield.
Yesterday, the US 2-year bond yield closed at 4.51%, while the 10-year bond yield closed at 3.76%.
Therefore, the difference between the 2-year bond yield and the 10-year bond yield was minus 75 basis points.
On October 5, 1981, when Paul Volcker was chairman of the US Federal Reserve, the Fed policy rate was 19%, inflation was 10%, and the difference between 2-year and 10-year bond yields was minus 79 basis . points.
The yield curve was last inverted in 2019, and the US economy plunged into a recession the following year, albeit due to the Covid-19 pandemic.
While the US 30-year bond interest rate rose to the 3.90 percent level, the 5-year bond interest rate in the country is at the 3.95 percent level.
WHAT DOES THE RETURN CURVE MEAN?
While rising rates on long-term bonds such kakım 10-year and 2-year bonds have driven activity in the recent period, the inverted yield curve is attracting attention.
The graph showing the relationship between interest rates and the maturities of debt instruments is called the “yield curve”.
The steepening yield curve shows that the interest rate of long-term debt is higher than that of short-term debt, revealing that in this case inflation is expected to rise in the long run.
The downward slope of the yield curve indicates that the interest rate of short-term debt securities is higher than that of long-term debt securities, while in the long term inflation is expected to decrease.
The inverted yield curve indicates that investors expect higher short-term rates when lending, also showing strong concerns about the Fed’s ability to control inflation without significantly impacting economic growth.
According to studies, the US yield curve has inverted before every recession since 1955, followed by a recession 6 to 24 months after.
The research also found that the difference between the 2-year bond yield and the 10-year bond yield has reversed 28 times since 1900. Of those, 22 have experienced a recession.
Rate hikes yaşama gökyeşitözü a weapon against inflation and slow economic growth by driving up borrowing costs for everything from mortgages to home improvement loans.
On the other hand, while the Fed raised interest rates by 375 basis points this year, it is expected to raise interest rates by 50 basis points with a 75% probability and by 75 basis points with a 25% probability. % at the December meeting. .