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Hello recession indicator:
Last night the 2/5 year Aussie bond slope slipped to within 5bps of flipping negative as long end yields again cratered to new lows. The 2/10 is clearly steeper but trending down heavily. Given this follows a very recent rate cut, the bond market is declaring loud and clear that the RBA has not done enough and, indeed, is behind the curve.
An inverted yield curve is a classic and very reliable indicator of impending recession. It happened briefly in Q3 2012 when the RBA was still hanging stupidly to its dreams of a permanent high plateau for commodities but the curve quickly steepened as the bank caught up with four more cuts.
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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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