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Societé Generale analysis team suggests that the significance of an inverted yield curve continues to be hotly debated but there’s clearly a consensus that 1) curve needs to be ‘properly’ inverted to be a recession indicator and 2) on average there’s a big lag, of over a year, between inversion & recession.

Key Quotes

“I’ve always struggled with the fascination with inversion, because the curve inversion really tells us that rates are about to peak. That there is usually a recession a year or so after Fed Funds have peaked, isn’t exactly earth-shattering.”

“Fed Funds futures price a zero probability of a rate hike in the next year, and a near-80% chance of a cut, so we shouldn’t be surprised by a 2020 recession, nor should we expect markets to position for recession this far in advance.”