Here’s a snapshot of four key maturity spreads as of November (examination sparked by an email from Deutsche Bank headlined “Recession looming”, delivered to my inbox today).
figure 1: Ten-year government bond yields minus three-month rates, in %, for the US (black), UK (tea), Germany (orange), and Japan (red). The three-month rate is the government bond yield in the United States, and the interbank rate in other countries. Dates of peak-to-trough recessions as defined by NBER are shaded in gray. Sources: Treasury via FRED, OECD key economic indicators, updated from Tradingeconomics.com, NBER, and author’s calculations.
Note that US and German (representing the Eurozone) spreads are falling; UK spreads rebounded in October, but I don’t have (comparable) data for November. Spreads in Japan continued to trade sideways. Sidenote: These spreads were inverted ahead of the 2020 recession, suggesting that even if Covid hadn’t hit, a recession may well have happened. Regardless, more curves are being inverted, albeit in different parts of the curve.
Below are the yield curves for the G-7 countries, as well as other large economies recorded on December 6th, worldgovernmentbonds.com.
Two other large economies not included in the G-7:
Another large economy is South Korea.
Chinn and Kucko (2015) The 10yr-3mo yield curve is found to predict recessions in the US, France, Germany and (if 3-month yields are included) Japan.
Several additional studies, including on China, describe here.
