benson This is the 10 year bond yield vs the 2 year bond yield which at the moment is in negative territory, meaning the rate for the 2 year is higher than that of the 10 year, which in normal times shouldnât be happening.
This has been created by the increase in rates by central banks to attempt to reduce inflation, which one could argue is occurring to some extent. However, this signals the countdown to an inevitable recession, every time since 1960 where the yield curve has gone negative we have had a recession with a year approximately.
The real question is, how bad, for how long and which markets will suffer the most.
Commercial real estate seems to be the most likely to suffer due to the expiration of fixed term loans on low interest rates, and the inevitable renewals at substantially higher rates, coupled with the reduction in requirement of office space in cities across the world due to the change in working practices post covid. Many smaller banks tend to hold these loans apparently and are less likely to be able to remain solvent.
