Simon_says

Prediction of next financial downturn

According to FedWatch Tool https://www.cmegroup.com/trading/interes... there will be 2 or even 3 interest rate CUTS in late 2020.

It means the difference between US10-US02Y spread will move up - arrow on the plot. We can already see that values jumped to 1.63 and that will continue!

The vertical dashed lines indicate the official beginning of recessions from https://fred.stlouisfed.org/series/T10Y2...

While the horizontal line (red/green) indicate 250 days moving average; Every time US10Y-US02Y crossed the 250d average the recession occurred but was not announced until a few months later!

It means interest cuts will follow during Presidential elections in the US and recession will not be announced until 2021!!!

Comments

Do you not reckon it would go lower to -0.4? I feel that we aren't near crisis point yet, maybe we're 5 years away like 1995-2000. Maybe short near the end of Trump's 2nd term.
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@Mt.BFX, Initially, my thoughts were exactly the same as your comment BUT go to FED Tool Watch and change date for July or September then you will realize that Yield curve is not going down anymore https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html In case of 1995-2000, the interest rates went up-down and finally up https://www.tradingview.com/symbols/TVC-US02Y/ that allowed to balance the recession but now we are going ONLY DOWN as you see on the FED Tool Watch. Of course I may be completely wrong, let's wait and find out.
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lets continue with your thought what it means for the stock market.... interest rate cut is, generally speaking, bullish for stocks plus election year almost always comes with a bullish run for the us stocks and companies and most of the time other markets follow.

USD bearish
stocks/ indices bullish

does that make sense?
+1 Reply
Simon_says Caripoule
@Caripoule, Thank you for this question, I have another plot that shows 250 moving average for US10-US02Y against US indexes and will post it this weekend :-)
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I wanted to ask for some time now.. when I see this chart..
How do I add it to my watchlist? :) is it possible if someone doesn't have pro access.
Cheers.
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Simon_says Endy123
@Endy123, Just save that page in favorites with your browser for Chrome it's a star in right top corner.
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Cool chart. I need to learn more about bonds. Keeping it simple and comparing with other indicators seems like the right approach. Good luck foreseeing any possible dramatic changes in markets as it is difficult. Your definitely on to something! I imagine some smart money people with the big strings get to articulate things when they see fit. Just seems like a logical observation.
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Thanks. Very interesting. Cross in 2013 (soon by a fall) was too short to generate a crisis?
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Simon_says sundevil8
p@sundevil8, The yield curve (US10Y-US02Y) must get inverted first then move up!

So 2013 situation is not valid as the difference between 10 and 2Y treasuries didn't go below '0' zero!

Please check this plot https://www.gurufocus.com/yield_curve.php
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sundevil8 Simon_says
@Simon_says, Thank you very much, it makes sense to me. But I'm guessing if current environment is the same of 12y-20y-30y ago, with so much more interference of Central Banks and the actual chance to pump huge liquidity without causing collateral effects (i.d. inflation) for long time.
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