Saturday, March 24, 2012

Today's Major Market Move: Australian Yield Curve Remains Inverted

We are taking the liberty of stretching the criterion for our "Major Market Move" post from a "Move" to a "Condition". The "Condition" we are going to address is the inverted state of Australia's yield curve. We're not sure when it first occurred, but the curve has been inverted for at least the past 30 days. Currently the 3 month bond is paying a higher rate than the 8 year bond:

Click here to go to the live table.
Inverted yield curves tend to be signs of recessions but a negative GDP print is not showing up in the IMF's gdp estimates (yet):

Click here to go to the live chart.
We would be remiss if we didn't make some clarifications. The GDP growth estimates provided by the IMF are yearly and the official definition of a recession (as per NBER) is 2 consecutive _quarters_ of GDP growth. This means a positive yearly GDP print could still have multiple quarters of negative GDP growth which would meet the recession definition. Note that in the above chart GDP growth flattens out considerably from 2012 forward so there is at least an indication of a slowdown in the Australian economy. Furthermore, the IMF estimates are provided every 6 months with the next release due in April, meaning that the current numbers are a little stale.

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