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The difference between long and short rates is at its lowest level in 11 years, which traditionally anticipates a financial crisis. Of course, the market says that this could be the exception
. A popular omen of a possible medium-term recession is just around the corner. However, from the market, they put cold cushions and say that there is no sign of contraction of growth in the United States on the horizon.
The state of the US Treasury yield curve has attracted attention – and concern – from investors since short papers began to climb faster than the long, before the perception of a more aggressive Federal Reserve. Indeed, in recent decades, curve investments – that is, when short rates are higher than long – have been followed by an economic recession in the United States. a year or two later
. If the long-term rates are lower than those in the short term, it's because the Fed should have to lower rates to help a struggling economy.
Now, the curve is flatter than in the last decade, with the differential between bond yield at 10 years and that of two years at just 30 basis points, close to its lowest level since 2007, the year the curve was reversed. Year in which, moreover, the financial crisis was unleashed (see chart).
That could be the exception
Of the market, yes, they call for calm.
In BlackRock, for example, director Axel Christensen, of the investment strategy for Latin America and the Iberian Peninsula, suspects that the force that flattens the curve is more related to capital flows than to give an estimate of expectations in itself.
Global funds, 10-year rates are trading around 2.9% while they should be between 3% and 3.5%. Because? "Long-term rates continue to be affected by central bank stimuli – not so much in the US, but in Europe and Japan, where central banks continue to buy many instruments," he adds. he added that this "pushes" investors towards US sovereign debt in search of better returns. "This has its merit" to see when the curve could be reversed as an indicator of recession, but "this time is not the same. is not as valid, "says Christensen
. Diego Torres, agreeing with the diagnosis, adds that an inverted yield curve can" coexist "with economic growth." is not an indicator that tells you that from the moment you invest, you will see a recession in six months or one more year, "he points out.
In this line, the l & # 39; Itaú-owned company is not in its scenario an economic depression to the state United, at least in the next 18 months.
And this seems to be the key date among market agents, as there are those who expect it to be at the end of next year. That's the case of Gennadiy Goldberg, currency strategist at TD Securities, who sees that the bulk of flattening of the curve comes from expectations badociated with the Fed, where the market predicts between a and two interest rate hikes for this year and between one and two rises for 2019. Then, the idea that reference rates could be reduced is strengthened.
In this line, Goldberg predicts that the curve will be flattened by c ompleto – that is, the differential of long and short rates will reach zero – by the end of next year.
But does that mean that the next few years could see a recession in the United States? "We are not planning one for now, but I think the chances of a recession will increase in 2019 or early 2020," says TD Securities strategist from New York.
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