China Yield Curve just went Inverted

China’s 10 year just went lower than the 5 year. 

Yet another sign (and this one is a screamer) that China may be the catalyst to the coming (and long overdue) global bust. Note that this has NEVER happened in China’s history.

In the US, this has happened 7 times. And each time led to a recession.

An inverted yield curve is when the longer-term bond yields are lower than shorter-term bond yields from the same entity (E.g., Sovereign Bonds). This situation is largely seen as a predictor of a recession.

This is a pretty rare occurrence. I mean, why would you tie your money up for a longer period at a lower yield? It doesn’t make financial sense. If I’m going commit money for a longer period, naturally, you want a higher rate of return. So what this is saying is that investors are showing little confidence in the economy, such that they want their money tied up for a longer term. The alternative is taking the shorter term and having to find another parking spot when the bond matures (and presumably the economy is weaker and that same bond would be yielding an even lower rate than today).

Also, it makes banks lending tighter. They won’t borrow short-term money to lend out long-term with an inverted yield curve. Look at the drop in M2: