16 Aug 2019: Will an economic slowdown threaten the tanker market?
The magazine ‘the Economist’ had an article this morning that talked about the inverted yield curve. That is a situation where the yield on ten-year government bonds falls below the yield on two-year ones. This happened earlier this week in both Britain and the United States. According to historians, this is an ominous sign. Over the last 50 years, an inverted yield curve preceded each of the last seven recessions in the United States. The reasoning is that when long-dated bonds yield less than short-dated bonds, the market expects interest rates to fall sharply in the future, which would happen if the Federal Reserve was responding to an approaching recession. If a recession is imminent, what will happen to the tanker market? After several dismal years with low freight rates, tanker owners were just getting ready for a few good years, driven by a combination of factors such as reduced ordering and the introduction of new regulations (IMO 2020 and Ballast Water Treatment Systems). Will a slowdown in global GDP, triggered by a recession in some of the world’s key economies derail the recovery in the tanker market before it even starts? To answer that question, we will review some of the most recent recessions in history and see how they impacted the tanker market.
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