Wednesday, February 21

US 2s/10s Treasury yield curve inverts

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NEW YORK — A key part of the yield curve inverted on Tuesday, as the 2-year US Treasury note yield briefly rose above the benchmark 10-year US Treasury note yield for the first time since September 2019.

An inversion of the two-year, 10-year part of the curve is viewed by many as a reliable signal that a recession is likely to follow in one to two years. The 2s/10s curve briefly showed minus 0.03 basis point. COMMENTS JACK JANASIEWICZ, LEAD PORTFOLIO STRATEGIST, NATIXIS INVESTMENT MANAGERS, BOSTON

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“The yield curve thing is front and center, that’s all I get questions about. My response to this is somewhat tongue in cheek, but if there was one indicator that really told us the direction of the economy and hence the direction of the equity markets , I probably would be retired on a beach sipping pina coladas. Bottom line, it’s not that simple. All of them (yield curves) tell you something a little bit different.

“The twos versus 10s has a pretty good track record of calling recessions going out. Point being, there’s a lot of things that are very different today. You could point to quantitative easing may have suppressed the 10-year-and-out part of the curve. So maybe, because we’re starting at an already depressed level, it makes it much easier to invert the curve.

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“There’s a lot of reasons technically speaking, maybe why the long end is depressed and that’s making it much easier for the curve to invert. So we always say ‘listen, if the technicals might be polluting the yield curve at this point, is it a tell to us? ELLIS PHIFER, MANAGING DIRECTOR, FIXED INCOME RESEARCH, RAYMOND JAMES, MEMPHIS, TENNESSEE

“While I think the ultimate result of an aggressive Fed tightening cycle is a recession, I do not expect it to occur quickly. Historically speaking, all recessions are preceded by 2s10s inversions, but not all inversions result in recessions. There have been more inversions than recessions. Inversions that precede recessions do so about 13 months ahead of the recession and the recession typically does not begin until the Fed has completed its hiking cycle and the yield curve has begun to steepen once again. If the timing is similar to history, the recession will begin roughly about this time next year.” LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO

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“The 2s/10s is interesting because I think you can look at the 10-year as an expression of what kind of economic growth is anticipated, and the two-year is more tied to Fed activity. So, for instance back in the 2004 – 2006 rate hike cycle, the fed funds went up from 1% to 5.25%, and during that time, the 425 basis point rise there and the commensurate rise in the two-year note yield, the 10-year essentially did nothing…. it was still a year and a half before the recession came, but it definitely indicates expectations of growth. And in part the slower growth is a function of that in the sense that a lending institution doesn’t necessarily want to loan for 5 or 10 years at a level that’s below what he’s borrowing at. So, it’s both an expression of and a function of slower growth.” JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON

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“The movements in the twos and the tens are a reflection that the market is growing nervous that the Fed may not be successful in fostering a soft landing. For one, the Fed has signaled that they could raise rates aggressively and that’s coming against a backdrop of expectations for growth to moderate this year already.”


“The yield curve inverting and predicting a recession has had a lot of false positives. What is hysterical to me right now is people are legitimately saying it inverted back in 2019 and ‘oh look we went into a recession in 2020,’ as if it predicted a pandemic. The time delay between an inversion and a recession tends to be, call it anywhere between 12 and 24 months. Six months have been the shortest and 24 months has been the longest so it’s really not something that is actionable for the average folks. So it is something to talk about until we don’t. The folks that really care about it look at the 3-month, 10-year spread which is at about 185 basis points.” RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS , A FAMILY INVESTMENT OFFICE, NEW VERNON, NEW JERSEY

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“The stock market view that we’re not in for a recession is more likely to be true than the bond market view that we are. You’re seeing the ability of the economy to adapt to higher prices. There still remains tremendous liquidity in the system.”

“The Russia, Ukraine situation is far from settled in any way. A lot depends on how energy ends up playing out.” JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL MANAGEMENT, CHICAGO

“This is one more item that the bond market is concerned about that the equity market is shrugging off.”

“The bond market is sending multiple warning signals that the stock market has essentially shrugged off.”

(Compiled by the Global Finance & Markets Breaking News team)



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