Daily Treasury Yield Curve and Recessions (Updated 12/22/2018)
With the news of Treasury yield curve inversions, I thought this Dept of Treasury Daily Yield Curve may interest you.
Watch how this yield curve is inverted.
The possible lessons are:
1. That the yield curve inversion must last several months before it portends a recession, and when this yield curve recovers the recession starts within 3 months of this recovery.
2. Given a small sample size of 2 a post-1991 recession has a duration of at least 1.5 times the duration of the yield curve inversion, with an advance notice of 1/3 its (yield curve inversion) duration.
Unfortunately, this means that if the yield curve inversion continues, there is a strong possibility we will have a recession from September 2019 to May 2020 i.e. 2020 election year will be about the economy.
Notes:
1. The Great Recession was the trigger that set off the Wall St Crash of 2008 i.e. Wall St was ripe for a crash and just needed a trigger.
2. Since 1980 recessions last between 6 months to 18 months, and tend to last about 9 months.
3. The National Bureau of Economic Research (NBER) is tasked with determining the start and end of a recession.
Update 12/22/2018
I checked the Fed data for 3-month, 5-year, 10-year, 20-year & 30-year treasury bond rates for inversion. That has not happened. Why the 3-month to 30-year? My analysis over the past several days shows that these 3/30 yield curve inversions guarantee recession, and are obeyed by all 5 of the recessions since 1978. However, these 3/30 inversions have not happened, yet. (Not all treasury bonds were available prior to 1993).
The surprise is that if you just use analytics, there is an easier definition for recessions, based on 7 of the 11 recessions since 1943 (there is no relevant bond data for the first 4 recessions). The analytical definition of a recession requires (i) Recession starts with 3/30 yield curve inversions accompanied with declining GDP growth, i.e. each quarter has decreasing GDP growth rates (ii) Includes GDP contraction that is negative (iii) Recession ends with positive GDP growth.
This definition of recession matches NBER's definition, However, analytical recessions begin earlier, between 1Q to 3Q earlier, and end 1Q earlier.
| Duration | |||
| Recession | Yield Inversion | Advance Warning | |
| 2001 Recession | 03/01-11/01 | 06/01-01/01 | |
| 11 months | 7 months | 2 months | |
| Great Recession | 12/07-06/09 | 08/16-05/17 | |
| 18 months | 10 months | 3 months | |
The possible lessons are:
1. That the yield curve inversion must last several months before it portends a recession, and when this yield curve recovers the recession starts within 3 months of this recovery.
2. Given a small sample size of 2 a post-1991 recession has a duration of at least 1.5 times the duration of the yield curve inversion, with an advance notice of 1/3 its (yield curve inversion) duration.
Unfortunately, this means that if the yield curve inversion continues, there is a strong possibility we will have a recession from September 2019 to May 2020 i.e. 2020 election year will be about the economy.
Notes:
1. The Great Recession was the trigger that set off the Wall St Crash of 2008 i.e. Wall St was ripe for a crash and just needed a trigger.
2. Since 1980 recessions last between 6 months to 18 months, and tend to last about 9 months.
3. The National Bureau of Economic Research (NBER) is tasked with determining the start and end of a recession.
Update 12/22/2018
I checked the Fed data for 3-month, 5-year, 10-year, 20-year & 30-year treasury bond rates for inversion. That has not happened. Why the 3-month to 30-year? My analysis over the past several days shows that these 3/30 yield curve inversions guarantee recession, and are obeyed by all 5 of the recessions since 1978. However, these 3/30 inversions have not happened, yet. (Not all treasury bonds were available prior to 1993).
The surprise is that if you just use analytics, there is an easier definition for recessions, based on 7 of the 11 recessions since 1943 (there is no relevant bond data for the first 4 recessions). The analytical definition of a recession requires (i) Recession starts with 3/30 yield curve inversions accompanied with declining GDP growth, i.e. each quarter has decreasing GDP growth rates (ii) Includes GDP contraction that is negative (iii) Recession ends with positive GDP growth.
This definition of recession matches NBER's definition, However, analytical recessions begin earlier, between 1Q to 3Q earlier, and end 1Q earlier.
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