'Importantly, my model argues that a yield curve inversion must be realized for a full quarter—not merely a few days,' writes Campbell Harvey. 'So we are not quite there — but the trend suggests we will soon be there.'
An unusual event occurred today. The yield on the 10-year Treasury bond fell below the yield on a 90-day Treasury bill. This is called a yield curve “inversion.” Perhaps it is no surprise that the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all dipped.
Importantly, my model argues that a yield curve inversion must be realized for a full quarter—not merely a few days. So we are not quite there—but the trend suggests we will soon be there. The recent increase in anti-trade, protectionist measures is working against economic growth. The ongoing trade war between China and the U.S. is bad enough. But the biggest and most pressing risk today is Brexit. Europe may already be in a recession and a disorderly Brexit would make growth prospects even worse.
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