Will China’s Flat Yield Curve Flatten Commodities?

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In the United States, one factor appears to do a better job of forecasting economic downturns than any other: the shape of the yield curve.  Over the past 40 years, there have been five sustained yield-curve inversions – when long-term interest rates are lower than short-term rates — and each one presaged a recession and a significant rise in unemployment (Figure 1).  The good news is that despite the Federal Reserve (Fed) raising interest rates four times since December 2015, the U.S. yield curve is nowhere near to signaling a recession.  Ten-year yields still exceed two-year yields by nearly 100 basis points (bps).  

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