An epidemic of an inverted yield curve has reached the eurozone, according to this week’s data for average interest rates on public debt for the entire European single currency area published by the European Central Bank on Friday.
An inverted curve means that the short and medium term rates demanded by investors are higher than those for longer maturity periods. This reversal is considered an early sign of recession in the coming months.
Public debt rates for the eurozone as a whole for 12 months averaged 2.2%, a level higher than interest rates for 2-, 3- and 4-year maturities. Because it is very limited reflection, experts speak of a partially inverted curve. European specialists and leaders of the European Central Bank expect a “mild” and short-term recession in the eurozone.
Germany with a fully inverted curve
However, the inversion of the curve is complete for Germany (the largest economy in the euro) and Malta. In the case of German bunds, the 12-month interest rate, at 2.17%, is the highest on the entire bond curve.
At 10 years the interest is 1.84% and at 30 years it is 1.58%. Rates over 2% are only recorded for 12-month bonds (the highest, as mentioned earlier) and 2-year bonds (2.07%).
This complete inversion of the curve is seen as a prediction of a recession in the Euro’s largest economy. According to the latest forecasts of the European Commission, the German economy is expected to decline by 0.6% next year.
Portugal is off trend
The fully inverted yield curve trend covers 26 countries, 14 of which are developed, according to the latest data from the Global Government Bonds Portal, which monitors the state of public debt worldwide. The advanced group includes Germany (discussed above), Canada, South Korea, Denmark, the United States, Iceland, Israel, Malta, Norway, New Zealand, the United Kingdom, Singapore, Sweden and Switzerland.
The partially or slightly inverted curves include 17 countries, nine of which are from the eurozone (Austria, Belgium, Cyprus, Slovakia, Spain, France, Ireland, Italy, and the Netherlands).
In the case of the yield curve on Portuguese treasuries, there has been an inversion between the 2- and 4-year maturities: the 2-year rate is 2.175%, higher than that of the next two maturities (2.109% and 2.136% respectively). But the WGB portal does not include Portugal in the set of minimally inverted curves.
