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Welcome back to the Charts of Christmas. Let's take a look at a chart many people think is very technical, but that actually matters a lot. This is the yield curve. The difference between the yields on 10 and two-year treasury bonds over time. Now, normally, the 10-year yield is higher because it's riskier to lend over longer periods. And indeed the last time you saw an inversion when the 10-year yield was lower was way back in 2006, when it signalled that a recession was coming. An inverted yield curve generally does signal the onset of a recession.
Now, at present, despite growth around the world, we have a flatter yield curve closer to inverting than at any time in more than a decade. Should we be worried about this? Janet Yellen, in her last press conference as chair of the Fed, said that there may be a correlation, but that doesn't necessarily mean causation. Doesn't mean just because there's a yield curve, which is a bad problem for banks, as well, that it's going to cause a recession. But it's certainly something we should look at very carefully as we enter 2018.