To put our current situation in perspective, look closely at the graphs. Those recessions with the biggest spikes were pretty bad: The three clustered on the left—1956, 1978 and 2006—have all been defined by wrenching increases in unemployment (as much as 4.5 percent). They also lasted much longer than garden-variety recessions.
Now consider that the current “real” level of the 10-year yield—a pathetic 0.35 percent—would sit far to the left of all the older recessions plotted on the graph. If the pattern holds—the lower the 10-year yield, the worse the resulting recession—the coming spike would be the biggest by far.
That possibility may seem remote, given that investors have apparently decided that it’s safe to dive back in the water: Thanks to a week-long rally, the major indexes are approaching all-time highs.
But the 10-year yield suggests we should be worried about what lurks beneath the surface. If a recession is in the offing, there’s a good chance it could be fiercer than anyone expects.
If so, those researchers are gonna need a bigger graph.
This article was provided by Bloomberg News.