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Economic Outlook: Difference between revisions
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# If investors see greater risk of recession, they will attribute higher value to short-term assets that they can easily liquidate to finance spending on goods and services. Hence, they will require higher compensation to keep holding long-term securities. This means a yield curve inversion in this escenario is an expectation of lower odds of a recession. | # If investors see greater risk of recession, they will attribute higher value to short-term assets that they can easily liquidate to finance spending on goods and services. Hence, they will require higher compensation to keep holding long-term securities. This means a yield curve inversion in this escenario is an expectation of lower odds of a recession. | ||
Due to these contradictory reasons, not all yield curve inversion will signal a recession, thats' why is important to understand the current enviromnent we are in and the sentiment among inversions. Since several surveys has been done recently already, especially the latest Philadelphia Fed survey of professional forecasters | Due to these contradictory reasons, not all yield curve inversion will signal a recession, thats' why is important to understand the current enviromnent we are in and the sentiment among inversions. Since several surveys has been done recently already, especially the latest Philadelphia Fed survey of professional forecasters showing the probability of a recession in the next year is the highest in the 50+ years this survey has been conducted<ref>https://www.philadelphiafed.org/surveys-and-data/real-time-data-research/spf-q4-2022</ref>, we can conclude that this time investors are pricing in mostly higher odds of a recession in the yield curve inversion. | ||
What is the current data telling us? | What is the current data telling us? | ||
# The 10Y2Y spread<ref>https://fred.stlouisfed.org/series/T10Y2Y</ref>: Current inversion around | # The 10Y2Y spread<ref>https://fred.stlouisfed.org/series/T10Y2Y</ref>: Current inversion is around -70 bps,the worst level since the 1980s, the continuing inversion started on July 2022. | ||
# The 10Y3M spread<ref>https://fred.stlouisfed.org/series/T10Y3M</ref>: Current inversion around - | # The 10Y3M spread<ref>https://fred.stlouisfed.org/series/T10Y3M</ref>: Current inversion around -60 bps, in line with the most serious inversions, the contuining inversion started on October 2022. | ||
# Majority of the yield curve is inverted at this moment, this condition has always preceded a recession <ref>http://www.worldgovernmentbonds.com/country/united-states/#:~:text=The%20United%20States%2010Y%20Government,last%20modification%20in%20December%202022).</ref> | # Majority of the yield curve is inverted at this moment, this condition has always preceded a recession <ref>http://www.worldgovernmentbonds.com/country/united-states/#:~:text=The%20United%20States%2010Y%20Government,last%20modification%20in%20December%202022).</ref> | ||