NEW YORK (Reuters) – Longest US economic expansion is at risk of 55% that it could slide into a recession within 12 months due to trade tensions and softer global growth, TD Securities analysts said Wednesday, based on their model of the US yield curve.
TD Securities said that the recession model is based on the spread between 3-month government bond rates and the 1
The premium of 3-month Treasury yields () over the 10-year Treasury yield () reached almost 40 basis points on Wednesday, the highest level since March 2007, according to Refinitive data. Typically, 3-month bill rates are lower than 10-year returns.
The two maturities first turned around in March before normalizing. They inverted again in May and have stayed that way ever since.
An inversion of 3-month interest rates and 10-year returns has preceded each recession over the past 50 years.
"The inversion appeared to increase momentum after May due to greater fears of global growth and trade policy uncertainty," analysts wrote in a research note.
Because of these risks to the economy, they expect the Federal Reserve to cut interest rates by a quarter at the next two political meetings, in September and October. They predict that it would reduce borrowing costs by another 75 basis points in 2020.
Last week, Fed makers cut US interest rates for the first time since 2008.
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