Yield curve signals possible economic slowdown in China starting later in 2018

Despite its imperfections, the interest yield curve in China has been useful in signaling acceleration and slowdowns in economic growth over the past decade. China’s yield curve is signaling a coming slowdown for China’s economy that could be exacerbated by China’s high level of leverage. Barrons has an article by CME Group’s Erik Norland that lays out the prediction.

• The slowdown may most likely occur in mid-to-late 2018, although it could start earlier or later than that timeframe.

• In contrast with the Fed and ECB in 2007/2008, the PBOC is coming off an easing, rather than a tightening, cycle.

• Does a bull flattening of the yield curve send the same signal as a bear flattening?

• China’s crackdown on credit expansion may be the reason why the yield curve has flattened and, if so, could spell trouble for China’s economic growth.

• Commodity markets such as copper and iron ore, as well as commodity currencies, appear to be looking backwards at China’s recent GDP growth rather than looking forward to the possibility of renewed economic slowdown.