The message from bond markets to stock investors

Risky assets including equities have surged following the U.K. electorate's historic vote to leave the European Union, but government bonds have also rallied; two things that ought to suggest different outlooks for economic growth. Analysts are pointing to the flattening U.S. yield curve as evidence of slowing expectations of economic growth. A model maintained by Deutsche Bank AG's Steven Zeng, who adjusts the spread for historically low short-term interest rates, suggests the yield curve is now signaling a 60 percent chance of a U.S. recession in the next 12 months — up from a 55 percent probability as of mid-June, and the highest implied odds since August 2008. "This relentless flattening of the curve is worrisome," Deutsche analysts said. "Given the historical tendency of a very flat or inverted yield curve to precede a U.S. recession, the odds of the next economic downturn are rising." Read more: (VIEW LINK)


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