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You can see other videos from our team here. Try refreshing your browser, or Last time Canada's yield curve inversion was this steep was just before the early 1990s recession. The yield on Canada's benchmark 2 year debt reached 100 basis points above 10 year bonds on Monday. It is the largest gap since the early 1990s, just as the country's economy was plunged into a deep downturn. The two-year yield was just below 3.8 per cent at 8: 13 a.m. Toronto time.
A yield-curve inversion often precedes a recession as investors move money to longer-duration debt in the face of rising economic concerns. It is currently a global phenomenon, with short-term yields around the world going higher as markets price in rate hikes from central banks working to slow inflation. Two-year treasuries yield about 78 basis points more than 10 years.
Taylor Schleich, a strategist at National Bank of Canada, said by email that current policy rates and their near-term expectations are unsustainable over the long run. He believes that the situation will continue for at least until investors see an endpoint for the Bank of Canada's rate hikes.
In Canada, most economists don't think there will be a major downturn, but growth is expected to stall in the year 2023, with the economy potentially entering a technical recession. Markets think the central bank will increase its overnight lending rate to a minimum of 4.25 per cent next year. It is possible that it could reach that level this week, with Governor Tiff Macklem and his officials due to make their final rate decision on December 7. The current overnight rate is 3.75 per cent, and economists are divided on whether the Bank of Canada will increase it by 25 or 50 basis points on Wednesday. If there is further deterioration in economic conditions, leading to more than a shallow recession, then the inversion could get worse, but this is not our base case scenario, Sebastien Mc Mahon, Chief strategist and senior economist at Industrial Alliance Investment Management Inc., said by email. He said that he would be surprised if we deteriorated to 200 bps like in the early 80s.