Those looking for clear recession signals in Canada and Australia have them. Portions of the Canadian and Australian yield curves are now inverted. Canada has been in a state of inversion for at least four weeks.
Canadian Yield Curve
In Canada, the entire t-Bill portion of the curve from 1-month to 1-year is inverted with 2-year bonds.
Reader Gary pinged me with the above chart from the Financial Post.
Australia Inversion
I did a quick check on Australia. Here are the numbers from Investing.Com.
- 1-Year: 1.913%
- 2-Year: 1.782%
- 3-Year: 1.749%
- 5-Year: 1.971%
- 10-Year: 2.395%
As you can see, 1-year debt trades at a higher yield than 2- and 3-year debt. 1-year debt is very close to inversion with 5-year debt.
Australia 10-Year Bond Yield
Yield on Australia’s 10-year bond is approaching the spike low of 2.236% in March.
Unlucky 25
In December, Fortune Magazine reported Australia Is Going on 25 Years Without a Recession.
Australia has not had a recession since June of 1991. That track record will soon be over. Australia is in recession. All that waits is the official pronouncement.
On January 31, 2015 I proclaimed Canada in Recession, US Will Follow in 2015. That assessment on Canada was accurate.
Time will tell if the US went into recession in 2015. I believe the US did go into recession in December.
Mike “Mish” Shedlock
Although there is little doubt that Canada is experiencing a recession, the very short end of the curve is only inverted due to the risk/expectation of further easing by the BOC with a long cycle for oil inventories/prices and the Canadian economy to normalize.
Not sure I’d look to the short-end of the curve for proof of a recession. Bigger proof everywhere else.
O/T (sorta) NIKKEI down another 5%.
The Ludwig Von Mises institute published this piece on Canada’s great healthcare system:
https://mises.org/blog/laura-hillier-rip
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Hi Mish,
I live in Australia andmy view is that Australia has a massive housing bubble (primarily in Sydney and Melbourne) and that commodity collapse is really hurting, (and will continue to hurt) and could easily result in a serious recession. Additionally the Australian government debt is rising (a problem that didn’t exist prior to the previous Labor Government coming in.)
However I (and you and Steve Keen et al) have been expecting this recession (and housing collapse) for a number of years yet it never seems to eventuate. A quick search of your site shows that for years you have on a number of occasions stated that Australia is in or about to be in recession (eg 2012), or in the middle of a housing collapse (eg2011) despite it not occurring. I think that finally the Australia may be running out of luck … or will this be yet another instance of it not eventuating? What is your view of those that say “If you keep predicting a recession, eventually you will be correct – even a broken clock is right twice a day”. eg Those that were cautious back in say 2012 and heeded warnings and didn’t eg buy property in the expectation the bubble would burst need the property market to have massive falls to get back to where it was. Of course this may yet happen, but every time in the past decade that it seemed like it might, it instead paused or dropped a tiny amount before increasing eg 20+% the next year.
Thanks for all your analysis.
Bobby
The situation in Oz is simple – in distress. No more so than the statistician adding instead of subtracting new unemployed for Oct and Nov. Dec was not in line with the full picture. Quarterly figures were so over the top it was stupid.
Housing is subject to inane government policy and taxation issues. Negative gearing on a second and third and fourth home. So you have SMSF and investors of all ilks buying and relying on valuations to borrow 100 percent.
Yes it will catch up – but China has an appetite like Japan in 1987 through to 1989 – so it is a matter of time. But – always a but…
The biggest single factor is the Government – the liberals are now left of centre – full socialists and taxes are increasing. Obviously they no little about Econ 101. Socialism rules. So those that want to reduce their taxes will negative gear into property.
Therein is Keens paradox. Yes property prices should crash with increasing unemployment and commodity prices crashing – but in order to reduce tax burden idiots prefer to pay interest on an asset that ‘they think’ will double every ten years.
Go figure.
It will end – but we have stupidity of central banks to deal with – the thought of negative interest rates are driving investors to gold and real estate. So the ever increasing bubble continues.
Welcome to Wayne’s World.
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