eResearch | Interest rates in Canada rose sharply this past week, unlike in the United States where rates moved within a fairly narrow range. Our Count-Down to a possible Economic Recession occurring in Canada was initiated on August 8 when the key 10-year/2-year yield curve ratio inverted for ten consecutive business days. The ratio has remained inverted ever since, although the ratio is moving back towards the Inversion inflection point.
Historically, an Economic Recession occurs about 15 to 20 months after an Inversion occurs, which means an Economic Recession could happen in Canada in November 2020 at the earliest.
U.S. Recession Barometer Reading
The eResearch Recession Barometer Reading is composed of three metrics: (1) the 10-year/2-year yield curve ratio; (2) an equal-weight average of 3 yield curve ratios, comprising the 20-year/10-year, the 10-year/3-month, and the 5-year/2-year maturity comparisons; and (3) an equal-weight average of 12 yield curve ratios. These three metrics are then equi-weighted in a Combined Reading.
The Recession Barometer Combined Reading for the USA continued to go down and is now at 7.5x, compared to 8.0x reported in the previous week. With key yield curve ratios rising off near-Inversion levels, the lower Recession Barometer reading means that the prospect of an Economic Recession occurring in the near term in the USA lessened again last week.
Spreads and Readings
The following table shows the three metrics, with their respective Spreads and Readings, since the beginning of August. The table shows that there was a three-week period when the 3-ratio Spread, the 12-ratio Spread, and the Combined-ratio Spread were all negative.
However, in order to trigger our Count-Down initiative, the metric that did not have an inverted ratio was the key 10-year/2-year yield curve ratio. Unless this metric is negative, our Count-Down does not start.
The table above shows that the Spreads for all of the metrics are continuing to widen, thereby lessening the possibility of an Inversion occurring and triggering a Count-Down to a possible Economic Recession happening in the near term in the USA.
You can read our comprehensive report by clicking the following link: Recession Barometer 2019-10-18
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