There are more similarities than differences
The US yield curve is breaking down.
US 10-year yields are down another 4 basis points and trading at 2.22%. That's well below 3-month bills at 2.35% and the lower bound of the Fed target at 2.25%.
Until a month ago, there was some dispute over whether it had really inverted. There's no dispute any more.
What's particularly worrisome is how inverted that parts of the curve have become. The five-year is particularly wide at 2.02%. That's a 33 basis point inversion to 3-month bills. In comparison, the height of yield curve inversion before the financial crisis was around the turn of the year from 2006 into 2007. It's tough to find the exact day but 2s10s maxed out in Nov 2006. On Nov 1, 2006, the three-month bill was at 5.04% compared to 4.52% for the five year. A negative spread of 52 basis points --- so we're not far off.
Here's how the curves compare.
Three things that stand out:
1) The long end
There's a question on whether the long end can really invert with effective Fed funds down at 2.38%. There just isn't room so long as we're not headed to a generation of deflation.
2) The gap
This is a stark reminder that we're starting at a much lower level. A 30-year fixed mortgage in 2006 was 6.8%. Even solid corporates were borrowing at +7% from 10 years out. The crisis was devastating but cutting rates added an incredible amount of stimulus. This time around the Fed has nowhere near the ammunition.
3) 2s10s
In the run-up to the crisis, two-year yields traded above 10-year yields off-and-on for a year. Right now, we're still +15. Again, some of that is simply symptomatic of a much lower starting point. The other argument would be that the crisis signal was for a longer-term recession while this time around it's more for a sharp, but short-lived slump.
