{"id":3027,"date":"2010-07-13T08:16:06","date_gmt":"2010-07-13T08:16:06","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=3027"},"modified":"2025-03-27T15:49:04","modified_gmt":"2025-03-27T15:49:04","slug":"positively-sloped-us-yield-curve-doesnt-preclude-double-dip","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=3027","title":{"rendered":"Positively-sloped US yield curve doesn’t preclude “double dip”"},"content":{"rendered":"

US recessions since the mid 1950s have been preceded by a flat or inverted Treasury yield curve. Some commentators take comfort from current curve steepness but the rule-of-thumb has been rendered obsolete by near-zero short-term interest rates.<\/p>\n

A summary measure of the slope of the Treasury curve is the gap between the yield on 10-year bonds and the discount rate on three-month bills. This has averaged 1.4% since 1955 but fell below 0.3% before the last nine recessions, turning negative in six cases – see chart.<\/p>\n

The three-month Treasury bill rate, however, was at least 3% across these nine episodes versus only 0.2% today. It is necessary to examine earlier recessions to gauge a “warning level” for the gap when short rates are very low.<\/p>\n

The four downturns between 1935 and 1955 each occurred against the backdrop of a positively-sloped curve. The closest parallel with today is 1937-38, when the three-month bill rate fluctuated in a 0.2-0.6% range. The curve flattened before the recession but the 10-year \/ three-month gap never fell below 2.3%.<\/p>\n

This 2.3% minimum may be a reasonable guide to a recessionary level of the gap today. Assuming that the three-month bill rate remains at 0.2%, this implies that the 10-year yield, currently 3.0%, would have to fall to 2.5% or below to generate a warning signal.<\/p>\n

Interestingly, the suggested critical level of 2.3% for the yield gap is close to the 2.5% used by John Hussman in his original list of recession-spotting criteria – see previous post<\/a>. The newer version of his list, however, employs a higher value of 3.1%, contributing to his recent recession call (since the current reading is 2.8%).<\/p>\n

As explained in the earlier post, 10 out of 11 post-war US recessions have been preceded by a contraction of real narrow money – currently still expanding. The central scenario here will remain a temporary slowdown rather than a “double dip” unless monetary trends deteriorate and \/ or the 10-year yield falls beneath 2.5%.\ufeff<\/p>\n

\"\"<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

US recessions since the mid 1950s have been preceded by a flat or inverted Treasury yield curve. Some commentators take comfort from current curve steepness but the rule-of-thumb has been rendered obsolete by near-zero short-term interest rates. A summary measure of the slope of the Treasury curve is the gap between the yield on 10-year […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-3027","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3027","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3027"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3027\/revisions"}],"predecessor-version":[{"id":5336,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/3027\/revisions\/5336"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3027"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3027"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3027"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}