Please read below an extract from the FT
Yield curves are very good forecasters of future economic and profits growth. Whereas the US yield curve remains very steep (with higher interest rates over longer maturities), suggesting robust growth, yield curves in many parts of the world are demonstrably flattening as their central banks’ tightening policies take hold.
India, for example, has one of the world’s flattest yield curves, with the spread between 1- and 10-year interest rates now only about 35 basis points. A year ago, that spread was over 250bp. By our estimates, India’s curve might invert over the next several months. Historically, inverted yield curves have consistently signalled significant economic slowdown, if not outright recession.
The emerging markets are increasingly showing characteristics of late-cycle economies: inflation ramping up, monetary tightening, yield curves flattening and overly optimistic earnings forecasts (with 45 per cent of emerging-market companies reporting negative earnings surprises during the last reporting period). The US economy, on the other hand, continues to demonstrate early- and mid-cycle traits. For example, growth in US industrial production is now positive in 30 of the 32 industrial categories measured by the Fed.
Yield curves are very good forecasters of future economic and profits growth. Whereas the US yield curve remains very steep (with higher interest rates over longer maturities), suggesting robust growth, yield curves in many parts of the world are demonstrably flattening as their central banks’ tightening policies take hold.
India, for example, has one of the world’s flattest yield curves, with the spread between 1- and 10-year interest rates now only about 35 basis points. A year ago, that spread was over 250bp. By our estimates, India’s curve might invert over the next several months. Historically, inverted yield curves have consistently signalled significant economic slowdown, if not outright recession.
The emerging markets are increasingly showing characteristics of late-cycle economies: inflation ramping up, monetary tightening, yield curves flattening and overly optimistic earnings forecasts (with 45 per cent of emerging-market companies reporting negative earnings surprises during the last reporting period). The US economy, on the other hand, continues to demonstrate early- and mid-cycle traits. For example, growth in US industrial production is now positive in 30 of the 32 industrial categories measured by the Fed.
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