Recession Barometer – Canada: All Key Yield Curve Ratios Are Steepening

Canada’s Interest Rate Inversions Continue To Worsen

eResearch | This week we are focussed on Canada. Some time ago we initiated a Count-Down to a possible Economic Recession in Canada occurring between November 2020 and April 2021.

We define an Economic Recession as being characterized by two consecutive quarters of negative GDP growth. That would mean that, to meet the first recessionary date of November 2020, Q2/2020 and Q3/2020 would have to experience negative GDP growth. To meet the April 2021 date, Q4/2020 and Q1/2021 would need to experience negative GDP growth. Between those dates, the other date scenario to define a recession is negative GDP growth in Q3/2020 and Q4/2020.

In our report this week, we provide charts for various interest rate maturities ranging between 3 months and 30 years. After having rebounded in the first half of September, interest rates across all the maturities are heading lower again.

2019-09-28 Recession Barometer - Canada Rates
        Source: eResearch

We also look at the interest rate Spreads for various interest rate maturities. Spreads are steepening once again.

2019-09-28 Recession Barometer - Canada Spreads
       Source: eResearch

We monitor three key interest rate yield curve ratios, those being 10-year/2-year; 10-year/3-month; and 5-year/2-year ratios. Excluding the 30/10 and the 10/5, the remaining three strategic metrics, as shown in the chart above, are inverted, i.e., the longer-term maturity is yielding less than the shorter-term maturity. This all gives credence to our thinking that an Economic Recession could occur in Canada within the next two years despite the bullish economic signs currently prevalent.

You can read our comprehensive 7-page report by clicking the following link:
Recession Barometer 09-27-2019

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About Bob Weir 3002 Articles
Bob Weir has over 50 years of investment research and analytical experience in both the equity and fixed-income sectors, and in the commercial real estate industry. He joined eResearch in 2004 and was its President, CEO, and Managing Director, Research Services until December 2018. Prior to joining eResearch, Bob was at Dominion Bond Rating Service (DBRS).