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Hit the Fan?

China’s Inverted Yield Curve 

On June 7th the spread between China’s 10 and 1 year Sovereign bond yields became negative. This was only the second time since 2005 that such an inversion occurred, and this time around it became the most inverted in history. 

An inverted yield curve, no matter what country it occurs in, is a sign of severe distress in the banking system and almost always presages a recession. 

A recession, or even just a sharp decline in China’s GDP growth, would send shock waves throughout emerging markets and the global economy. Indeed, on July 17th the major indexes in China all plunged the most since December 2016 due to investor fears over tighter monetary and economic controls from Beijing. 

If the yield curve remains inverted into the fall, look for exacerbated moves to the downside in global markets.

 DYI