In-article:

Rising short-term borrowing costs highlight recession risk


According to economic theory, each time this curve has inverted for the United States, it has preceded a recession. Rene Schmidt/photoschmidt – stock.adobe.com

ANALYSIS – Bond markets are monitoring the inversion of the yield curve.

When it is cheaper to borrow long term than short term, it is a sign that the immediate risks are increasing. This is the logic behind the well-known phenomenon of the inversion of the curve between short and long rates in the government bond market. According to economic theory, each time this curve has inverted for the United States, it has preceded a recession.

However, the rate for two-year American loans was 4.30% on Thursday, against 3.47% for those at ten years. A difference of almost 0.9 points – the highest since 1981. Ditto if we take the three-month rate only, also at 4.30%.

In a “normal” situation, it is more expensive to borrow in the long term because it involves a degree of uncertainty, and therefore a greater risk premium. The reversal means on the contrary that the situation in the short term must deteriorate before improving later. In other words, if the model is to be believed, the United States is about to enter a recession.

The indicator…

This article is for subscribers only. You have 71% left to discover.

Cultivating your freedom is cultivating your curiosity.

Keep reading your article for €0.99 for the first month

Already subscribed? Login



Source link -93