The yield curve has just inverted which means that now short-term interest rates are higher than longer-term ones. In this case, the difference between 3 and 5-year Treasury yields dropped below zero. The same day during the trading session the DOW index fell 800 points just after announcements of the end of the ‘trade war’ and heightened enthusiasm from many investors in the United States. This is the pre-eminent recession indicator for traders and analysts. The next thing everybody should be on the lookout for is the 2 and 10-year Treasury yields which are also going to invert it’s only a matter of time.
“The yield is just the return on investment someone gets from buying a bond. The yield curve is just the difference between yields on two different bonds that have the same quality, but different maturity dates. Yields on 10-year Treasury bonds minus yields on 2-year Treasury bonds is a particularly common example. (It’s called a yield “curve” because of how the relationship is sometimes presented in financial analysis.)” – The Week
According to the Federal Reserve, every time the yield curve inverts a recession in the U.S. sets in. This coupled with the next interest rate hike, based on data from U.S. authorities and the FED, possibly taking place in December. Due to the dollar being the biggest export of the United States, the inverted yield curve coupled with higher interest rates and a massive amount of debt in the economy will shake the U.S. markets.
“The term spread—the difference between long-term and short-term interest rates—is a strikingly accurate predictor of future economic activity. Every U.S. recession in the past 60 years was preceded by a negative term spread, that is, an inverted yield curve. Furthermore, a negative term spread was always followed by an economic slowdown and, except for one time, by a recession.” – in a paper by Michael Bauer and Thomas Mertens, two Federal Reserve research advisors
A few days ago one of the biggest European banks, the Deutsche Bank was raided by Germany police and their offices were searched resulting in the seizure of documents. Translating the situation to English: one arm of the government has raided another. Deutsche Bank was dubbed the ‘most dangerous bank of the world’ by the IMF back in 2016 shortly before getting bailed out by Qatari and Chinese businessman preventing a major economic collapse in Europe. Because of that, a Chinese investment group has acquired a large stake in the bank giving China notable financial control over Europe. Deutsche Bank is a bank which cannot be bailed out, its problems are too big to solve by even the German Central Bank because Deutsche has a total derivative exposure of over $60 trillion, that’s over 16 times the German GDP. According to experts, it’s only matter of time one derivative product fails (eg. mortgage-backed securities, credit default swaps, or collateralized debt obligations) before this bubble pops. If the Deutsche Bank fails it will bring down with it Europe and all of the developed world. The aim of this raid was certainly to prevent another possible collapse of the bank.
I’ve already described in great length in a previous article titled ‘National Currencies Collapsing‘ the global debt crisis and its implications and these new developments display red flags of systemic dangers within the global economy.