DB Financial Investment “It takes 39 weeks until the economic recession after the US long-short-term interest rate inversion”

(Seoul = Yonhap News) Reporter Seon-hee Yoon = DB Financial Investment said on the 31st that there is a time lag between the inversion of the US long-term and short-term Treasury bond yields and the actual economic recession, diagnosing the market’s concerns about an economic recession as excessive.

In the U.S. bond market on the afternoon of the 29th (local time), the yield on the two-year U.S. Treasury note surpassed the yield on the 10-year U.S. Treasury at 2.39%.

It is the first time in two and a half years since September 2019, when the US-China trade conflict was in full swing, that the yield on the 2-year Treasury bond reversed the yield on the 10-year Treasury note.

A phenomenon in which short-term interest rates are higher than long-term interest rates is an abnormal situation and is regarded by the market as a harbinger of a recession. Long-term interest rates are usually higher than short-term interest rates.

Seol Tae-hyeon, a researcher at the time, emphasized, “Since 1965, when the yields on 10-year and 3-month government bonds reversed until recently, an economic recession occurred with an average time lag of 39 weeks.”

“Even if we look at the returns by major indices during the reversal period, we need to avoid excessive concerns about the inversion of US long-term and short-term Treasury yields,” he said.

When looking at the difference between short- and long-term yields, we compare 10-year and 3-month bonds in addition to 10-year and 2-year government bonds.

According to DB Financial Investment, if you look at the period of inversion of US long-term and short-term Treasury bond yields and yields of major indexes, the long and short-term interest rate inversion occurred on July 4, 1969, and the economic downturn began on November 1 of the same year. During the interest rate inversion period from July 4, 1969 to February 6, 1970, the S&P 500 fell 11.3%.

Also, when the yield of short- and long-term government bonds inverted on June 1, 1973, Gyeonggi-do fell into recession on October 1 of the same year. During the inversion period through September 13, 1974, the S&P 500 fell 39.6%.

During the interest rate inversion period from October 31, 1980 to September 4, 1981, the S&P 500 fell 7.5%, but the KOSPI rose 32.6%. The economy started showing signs of recession on June 1, 1981, about eight months after the rate inversion started.

From July 7, 2000 to January 19, 2001, the long and short-term interest rates inverted, but the recession began on February 1, 2001. During the interest rate inversion period, the S&P index fell 7.7% and the KOSPI fell 24.5%, respectively.

During the long and short-term interest rate inversion period, which lasted from July 21, 2006 to May 25, 2007, the S&P and KOSPI rose 22.6% and 31.0%, respectively. At that time, after the interest rate inversion, the global financial crisis occurred, and the economic recession began on November 1, 2007.

The recent inversion of short- and long-term interest rates occurred from May 24, 2019 to October 4, 2019. During this period, the S&P 500 index rose 3.2%, while the KOSPI fell 1.7%, and the economy fell into recession on February 1, 2020.

indigo@yna.co.kr

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