“A significant time lag between a reversal and a recession”… “The gap between 10-year and 3-month bonds widens”
Concerns over an economic slowdown are growing as the yields on US Treasury bonds inverted.
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.
Domestic market experts said on the 31st that there is a significant 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.
Seol Tae-hyeon, a researcher at DB Financial Investment, emphasized, “From 1965 until recently, when the yields on 10-year and 3-month government bonds reversed, 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.
He also added, “The US monetary authority, the Federal Reserve, also does not have the ability to predict the 10-year and 2-year inverted yield markets, so it does not need to be given much significance, and the short-term forward spread ( It is far from the interest rate difference), so we responded that excessive concerns should be avoided,” he emphasized.
Park Seok-joong, a researcher at Shinhan Investment Corp, also emphasized, “Since 1980, the short- and long-term interest rate inversion has been repeated six times before the recession, but this is only a high probability and it is difficult to explain with economic theory.”
“There are many cases where the short-term interest rate inversion was unsuccessful by determining that the long-term interest rate inversion was an economic downturn, and there is a time lag of 6 months to 2 years or more (before the reversal occurs and the economic recession occurs),” he explained.
By country, the long-term interest rate gap is widening in China, where the economy is down, and Europe, where there are concerns about a recession, and the 10-year and 3-month bond yield gap in the US is also widening.
Son Ho-seong, a researcher at DS Investment & Securities, said, “Looking at past cases, short- and long-term interest rate inversions can be interpreted as a signal of an economic downturn, but now in the US, the Fed’s excessive asset purchases, inflation (inflation), war, and the global pandemic of Corona 19 ( Pandemic) and other materials are mixed, and the analysis that different results from the past can occur,” he said.
He also said, “There is also an interpretation that the US economy is in a booming period in the part where the interest rate gap between 10-year and 3-month bonds is widening.” is a judgment,” he emphasized.
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.
Park Sang-hyeon, a researcher at Hi Investment & Securities, said, “In the past, when the difference between the volatility index of the bond market and the stock market widened, the credit spread (interest rate difference) widened and an economic recession became a reality. “This suggests that the risk of a recession is unlikely to materialize immediately,” he said.
/yunhap news
