Yield curve… As recession events intensify, it is revealed that the next 1-2 years will not go smoothly economically as a result of the flattening in the yield curves and the convergence of short-term interest rates and long-term interest rates. The flattening of the yield curve indicates that markets expect slowdown and stagnation in growth in the long run. Serious price increases in the commodity group, especially oil, increase the concerns of stagflation, which is the definition of high inflation and low growth.
USA 5-year – 30-year bond spread, Brent oil and GDP growth comparison… United States It consists of general spread rates. This spread is a calculated yield spread multiplied by selling the current 5-year U.S. Treasury bond and purchasing the current 30-year U.S. Treasury bond, then multiplying the differences by 100. Source: Bloomberg
Yield differences… Stagflation concerns also make themselves felt in the bond market. The 10-year breakeven ratio, which measures the difference between the yield on US 10-year inflation-indexed bonds and the yield on Treasury bills with the same maturity, reached its highest level since 2005. On the other hand, the yield gap narrowed to levels not seen in the pandemic for 2-year and 10-year government bonds. The expected slowdown will be realized through a production and consumption channel that will spread to the whole with the decrease in oil, raw material and food supply.
Conclusion? There are approximately 1-2 year lags between yield curve flattening and recession periods. We observe that the bond market is pricing accordingly in severe recessions such as the 2008 financial crisis, the 2020 Covid shocks, and these references show that the convergence of short-term rates to long-term rates increases the risk of a severe recession or stagflation. The relationship between oil price and economic growth will not operate in the form of a decrease in price due to the demand shock in the Covid crisis, but in the form of a shock caused by a shortage of supply.
Kaynak: Tera Yatırım
Hibya Haber Ajansı
