Deutsche Bank: Odds are, another crash is coming


Via the Wall Street Journal comes a warning:

The so-called yield curve suggests there’s a 60% chance of a U.S. recession occurring in the next 12 months, according to analysts at Deutsche Bank, led by Dominic Konstam. The calculations attach the highest probability to an economic contraction since the financial crisis.

The yield curve, typically measured using the level of long-term rates relative to short-term rates, has gained particular attention this year because of the narrowing difference between the two, often thought to signal an economic slowdown. Some measures are at their flattest since 2007.

The bank’s fixed-income researchers looked at the difference between the three-month and 10-year U.S. Treasury yields, which has been narrowing sharply in recent months. Adjusting for the low level of short-term rates suggests that the yield curve is already inverted, they found.

“Given the historical tendency of a very flat or inverted yield curve to precede a US recession, the odds of the next economic downturn are rising,” the analysts found.

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