What Bond Markets Say About Next Recession

With the recent spate of financial media on the risks of a recession forthcoming, Patrick O’Toole, Vice-President of Global Fixed Income at CIBC Asset Management, discussed its origins stemming from the bond market.

Important points discussed:

    • To get a sense of whether a recession is on the horizon, most will analyze the 2-year yield against the 30-year yield — when the former rises above the latter, a recession is imminent
    • When the difference between the 2- and 30-year yield gets below one percent, then markets will get jittery from recession fears
    • The inversion of the 2-year and 30-year yield will be closely looked at during the next rate hikes by the Federal Reserve — this could be the case by the end of 2018 or early 2019
    • What the bond market signals on growth and inflation
    • Current market is now in the latter portion of the economic cycle–second longest since World War II
    • Short-term versus long-term interest rates

Related: The Fed: More Hawkish, but What Did You Expect?

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For more trends in fixed income, visit the Fixed Income Channel.