YIELD CURVE INVERTS AFTER THE DECEMBER FOMC MEETING - US RECESSION 18 MONTHS LATER

It is different this time. Asset prices are a signal, such a pity that sometimes this information cannot be discerned until after the fact.

 What is truly different this time is that past inversions have rotated around a ~5%-rate while this time we will rotate around a ~3%-rate. 

Historically the Curve has inverted from the FED jamming their policy rate higher; in contrast, this next inversion seems to be driven by the back-end coming down.

 

The signal that an iceberg is ahead is NOT that the FED is jamming the Yield Curve flatter, but rather that long-term interest rates have declined by 30bps through the most recent FED hike and that this is occurring despite

  • Massively expanding supply thanks to Quantitative Tightening (QT) and
  • The Tax Package.

Market pundits like to say: "They don't ring a bell at the top".  The fact is that the market does, it is that we are just not listening!

RECESSION

The Yield Curve, as described as the difference between the T2yr vs T10yr rates, will not invert until near the December FOMC meeting.

This is when to start the clock for the typical 18-month lead-time to a recession (sometime in mid-2020).