According to Deutsche Bank’s analysts, the United States has a 60% of entering a recession in the near future. That’s the highest probability since the last recession that came after the financial collapse of 2008.
This prediction is based on flattening yield curve where yields between short-term and long-term bonds are narrowing. When it comes to the last seven recessions, Fortune Magazine reports, short-term rates had risen above long-term ones.
One of the reasons why long-term rates drop is that investors are seeking save havens, often prior to recession, and are willing to accept lower returns.
“Given the historical tendency of a very flat or inverted yield curve to precede a U.S. recession, the odds of the next economic downturn are rising,”stated Dominic Konstam, one of the bank’s analysts.
On the other hand, the New York Federal Reserve estimated that there’s an 8% chance of a recession in the following 12 months. A downward sloping yield curve has been a relatively good indicator of recessions in the past, but it is not foolproof. There are other factors that will play a role.
One of the reasons for flattening of the curve is due to Brexit concerns. But, the British exit from the European Union may have only limited consequences for the United States. On the other hand, a turmoil in China could be more consequential.