Summary
Phil presents the US and Australian yield curves as the most important cycle indicator. The 2019 curve inversion predicted the recession; the subsequent steepening (borrow short, lend long) is extremely lucrative for banks and signals the second half of the cycle. US 10-year yield rose from 0.93% (Dec 2020) to 1.62% (May 2021) as Biden infrastructure plans drive credit expectations. No US recessions occur when the yield curve is widening.
Key Claims
- The 2019 US and Australian yield curve inversions correctly predicted the onset of recession. — confidence: high
- Yield curve widening after recession = deliberate Fed policy to fuel the second half of the cycle. — confidence: high
- “Borrow short, lend long” = extremely lucrative for large US banks. — confidence: high
- US recessions do not occur when the interest rate curve is widening. — confidence: high
- US 10-year yield rose 69 basis points from Dec 2020 to May 2021. — confidence: high