TD Securities analysts note that with 3m-10y curve hitting its lowest level since 2007, US recession fears have re-emerged.

Key Quotes

“Historically, a US recession follows a year after the curve inverts, though the variance is large. There are also occasional false positives.”

“Some have argued that the curve is distorted by the reach for yield due to global central bank QE. However, we would counter that the reach for yield itself is a function of weak global growth and below-target inflation.”

“Our 3m-10y recession probability model estimates a 55% chance of a recession within 12 months, which is the highest level since 2007. This supports our Fed call of 50bp of more eases in 2019 (September and October), followed by an additional 75bp of easing in 2020. It also supports our long 10y Treasury stance.”