“While the 2-10 year US treasury yield spread has moved sideways in recent weeks, the recent plunge in the 12m-10y spread has activated our early warning system and now gives a 69% chance of a recession by May 2020,” note Rabobank analysts.
Key quotes
“The US treasury yield curve is increasingly pointing at 2020 as the year of the next recession. The first cracks in the housing market confirm our suspicion that monetary policy error is the cause of the next recession as the higher level of interest rates has started to slow down aggregate demand.”
“In fact, it seems that this sequence of events leading to a recession has started before a full inversion of the US treasury yield curve. Even if the Fed were to abandon its hiking cycle immediately, the damage may already have been done.”
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