The Philippine Treasury's 10-year 3-month Spread Inverts! More Trouble for the Banking System (and the Economy)!

The Philippine Treasury's 10-year 3-month Spread Inverts! More Trouble for the Banking System (and the Economy)!

Last Sunday, we discussed here the spreading and intensifying inversion of the domestic yield curve.

See 2014 Prediction Fulfilled: Philippine Yield Curve Inversion Spreads! US Yield Curve Inverts Too! Global Recession Countdown Starts March 24, 2019

Figure 1

Well, the inversion has been escalating as shown by the benchmark BVAL rates published at the PDS Group website.

Yesterday, negative curves spread from 1-year to 6-months T-bills. With yields of 10-year bonds falling faster, yields of 6-month T-bills has exceeded that of the former.

Today, with the yield of the 10-year bond yield collapsing anew, the 3-month T-Bills equivalent closed the day HIGHER!

Also, the yield of the 6-month T-Bills has topped the 20-year Bonds!

Figure 2

Meanwhile, 3-month T-bill rates (5.84%) have passed the 10- (5.804%) and 20-year (5.814%) rates as exhibited by the PDS data.

Strikingly, the one-year yield (6.07%) has also marginally exceeded the 25-year (6.06%)!

The two charts above exhibit the inverted curve.

With the 20-year bond at the end of the (lower) chart, the negative curve has been much pronounced.

The escalating inversion should signal big trouble ahead for the already embattled banks first, then the credit dependent firms that should ripple or percolate throughout the economy.

Figure 3

Oh, in the US, negative or inverted curves had preceded recession for an average lead time of 14 months.

While negative curves don’t accompany recession 100% of the time and distinct conditions support the economic backdrop, recession risks have been magnified by it. 

Because of the tremendous buildup of leverage in the system represents a feedback loop of cause and effect from easy money policies, the inverted yield curve is its symptom.

Back home, where banks dominate credit creation, negative curves should have a dramatic impact.

The Dr. Jekyll side of the BSP proclaimed that the Philippines have no asset property bubbles.

When faced with their contemporaries, the BSP exhibits their Mr. Hyde side. Probably not this time with a Diokno led BSP.

We shall soon see via the proof of the pudding is in the eating whether this claim is valid or has been made to defuse concerns from certain quarters.

These are truly interesting times. 

The Year of the Pig!