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Recession Risk: Why BMO, JPM, and GS Say ‘This Time It’s Different’


Mar. 29 2019, Published 3:26 p.m. ET

BMO Capital Markets

BMO chief economist Tom Porcelli discussed his take on the current yield inversion and the implications for the markets. As reported by Zerohedge, Porcelli said, “the yield curve at present is not a referendum on the path of economic growth in the United States, but rather a function of goings on globally.” He, therefore, believes that this time the signal from the yield curve inversion is not as relevant. He also said that this time the yields have decoupled from growth in a material way. BMO is, therefore “more than any other point this cycle, on bubble watch.”

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J.P. Morgan

J.P. Morgan analyst Marko Kolanovic believes that this time it is different, as the ten-year Treasury yield has been kept artificially lower by zero or negative yields out of the US (DIA). In fact, he believes that some of the strongest returns of the stock market (SPY) come after yield curve inversions.

Goldman Sachs

Goldman Sachs believes that investors are looking at the wrong bond market indicator. A part of the yield curve has inverted where the yield of the ten-year Treasury security fell below the three-month security. As reported by CNBC, GS believes that it is more usual to see the yield on two-year (TLT) securities break above the ten-year yield (BND) (AGG) first. Therefore, the bank does not believe that the inversion is sending the same powerful recession signal as it has sent in the past.

Similar to JPM’s argument, GS believes that the slide in the US ten-year security is due to the pressures of the global bond market. The bank adds, “This dynamic has probably been supported by international spillovers from non-US rates where QE [quantitative easing] and low growth and inflation expectations have supported lower 10y rates.”


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