SebastienYC_FR

TBonds spread correlation suggests systemic recession

Short
The current trend of yield curve (10-02) looks very similar to past pre-recession eras.
We heard many times that a negative yield curve means recession. But that's not the case : recessions occur with widening spreads after touching ZERO.
In the past, it was a signal of systemic recession with high probability.

I added a correlation indicator to SPX . We can observe clear cycles. We are currently in positive correlation, spreads are widening and SPX rising.
It's the same situation than October 2007 : New ATH , quickly widening spreads above 0.70, positive correlation.
Then the correlation became negative : widening spreads and falling indexes.

Short sellers should focus on the correlation. As soon as it becomes negative, that's the signal of the next big recession.

Comments

Long TLT.
Keep us updated with this chart, many thanks.
Reply
@T-r-X, Thanks. The Tbond yields are definitely rising TLT. Impact on stocks could be deadly
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