Could this be the warning sign of a recession?

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08/28/2018 | 03:23 pm
Last week, the yield on the U.S. 10-year Treasury note dropped below the yield on the 3-month paper. This inversion between short-term and long-term borrowing costs could be signaling an impending recession, the San Francisco Federal Reserve Bank said in a study.


Lately, there has been some volatility on stock markets, along with rather disapointing economic data.  And to top this, a yield curve inversion! Many of us are starting to wonder when the next recession will hit. A  recent study from the San Francisco Federal Reserve Bank might be cause for concern.

It says that when long-term rates drop below short-term rates, it is generally followed shortly afterward by an economic recession.
 

(Source : CNBC with Fact Set)
 
The ten-year goes below and three-month Treasury, indicating an inversion of the yield curve, "about a year or two before the onset of a recession”, the study states. 

Signs of hope

However, not everybody agrees that the long spread is the best indicator. According to Eric Engstrom, the U.S. Board of Governors of the Federal Reserve System, and Steven A. Sharpe, from the Federal Reserve Board, for predicting recessions, such measures of a "long-term spread" are statistically dominated by a more economically intuitive alternative, a "near-term forward spread."

Savita Subramanian, the head of US equity and quantitative strategy at Bank of America Merrill Lynch, told CNN Business that she doesn't seem too worried that a major downturn is in the cards., citing the lack of any significant inflation, lower interest rates and a healthy job market.
 
Romain Fournier
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