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Economy

Inverting Yield Curves in India and Brazil

From CNBC:

Brazil’s and India’s government yield curves are inverting, a condition in which short-term rates rise above longer yields. Historically, such an inversion almost invariably precedes a recession, as investors temporarily accept lower long rates in anticipation of the decline in yields that typically accompanies an economic downturn.

(HT: Deepak Singh)

At this point the 10 year bond is at 8.26% and the 182 day T-Bill went yesterday at 8.22%. The five year bond is at 8.34%. In a way, the curve is already inverted here.

Yield curve inversion has seen worse time, like I’ve mentioned in an earlier post (Inverted Yield Curves=Slowdown):

1yr 10yr yield spread

The last time curves got close to inversion, markets went up like crazy first and then reversed. When it finally inverted (July to Oct 2008) interest rates were high – repo rate was 9%. The new chart

InvertingYieldCurve 10yr 1yr spread

It just gets worse!

Btw, in that article – Brazilian interest rates are 12.25%. Remember that when they try to tell you we’ll “probably only go up to 8%“.