Signs of Recession Nearing a Crisis: Bond Market Signals Danger

The National Bureau of Economic Research lists 10 recessions between 1948 and 2011. Each of these economic periods caused significant hardships for American citizens.

What are the signs of recession? Are we seeing any of these indicators now?

Read on to learn about the current market signs that could be indicating a coming fall.

The US Yield Curve: What Does It Mean?

The US yield curve is often used to help predict future changes in economic growth. The yield curve can have three basic shapes: flat, normal, or inverted.

Normal curves suggest that long-term bonds will have higher yields. This is often due to an expectation that the economy will get better. It’s also because there is a risk associated with holding the bond over time.

What’s an inverted yield curve mean? This curve means that short-term yields are greater than long-term ones. It’s an indicator that investors believe long-term bonds will fall in value.

Signs of Recession: An Inverted Curve

For the first time in over ten years, the U.S. Treasury confirmed an inverted US yield curve. The last time this happened was in 2007, right before the big crash of 2008.

Currently, the yield curve is at 17 basis points. Experts suggest this same bond market event happened before the last three recessions.

After the inversion, there’s usually a period of about 17 to 38 months before a recession hits.

Here are a few other indicators economists watch for signs of a recession:

• The direction of the Federal Reserve (interest rates)
• The Dow Jones Industrial Average
• Declining home sales
• Increasing consumer debt
• The Leading Economic Index
• Currency disruptions in emerging markets

Despite these many warning signs, predicting a recession is still guesswork. No one can be certain about when a recession will hit.

What’s the Global Market Saying?

On top of the yield curve, current political tensions have given rise to modern-day trade wars. The US is experiencing raising interest rates and political turmoil.

Concerns around electronic banking and cyber security have also raised consumer’s fears. Over the past several years, hackers have obtained vast amounts of consumer data.

During the last recession, subprime lending was a major concern. This time around, non-prime lending has replaced the bad practices of the past. Better standards should help prevent a repeat of 2008.

These various factors are all major indicators and warnings of a potential recession. Investors around the globe are becoming more interested in investing in gold.

Prepare for a Potential Recession

Currently, the US economy is experiencing the second biggest expansion in its history. The last expansion that was this bed led to the dot-com bubble.

These signs of recession alongside growing global unrest should be worrisome for investors. It may be time to start making moves to protect your mutual fund and other assets from the future recession.

Are you a market enthusiast? What are your thoughts on the market signs we are seeing now? Leave your reply in the box below. We’d love to hear from you!