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Deeply inverted Treasury curve narrowly misses reaching 41-year milestone
Marketwatch ^ | Feb. 9, 2023 | Vivien Lou Chen

Posted on 02/09/2023 2:59:49 PM PST by lasereye

A bond-market gauge of impending U.S. recessions fell just shy of reaching its most negative reading since October 1981, when interest rates were 19% under Paul Volcker’s Federal Reserve.

That gauge, which measures the spread between 2- TMUBMUSD02Y, 4.492% and 10-year Treasury yields TMUBMUSD10Y, 3.662%, finished the New York session on Thursday at minus 82.5 basis points. In other words, the 10-year yield was trading 82.5 basis points below the 2-year yield.

Over much of the day, the spread appeared to be on track to surpass its Dec. 7 low of minus 84.9 basis points and seemed headed for the most negative level since Oct. 2, 1981, when it reached minus 96.8 basis points, according to Dow Jones Market Data. Instead, it fell just shy of December’s mark.

The continued inversion comes at a time when investors and policy makers are bracing for additional Federal Reserve rate hikes and a period of disinflation, or a slowing pace of inflation, that could take some time to work its way through. One possible silver lining behind Thursday’s bond-market moves is that many investors appear to believe the Federal Reserve will stick by its inflation-fighting campaign — and ultimately win it.

Stocks initially rallied on Thursday, but gave up gains around midday. All three major stock indexes finished down for the day, with the Dow Jones Industrial Average DJIA, -0.73% off by 0.7%, the S&P 500 SPX, -0.88% falling 0.9%, and the Nasdaq Composite lower by 1%.

“Our call for 2s/10s to reach -100 bp is back on the table after appearing less realistic” at the end of last year, when the spread closed around minus 55 basis points, BMO Capital Markets strategists Ian Lyngen and Ben Jeffery said in a note Thursday.

(Excerpt) Read more at marketwatch.com ...


TOPICS: Business/Economy; News/Current Events
KEYWORDS: bonds; economy; interestrates; recession
An inverted yield curve means the bond traders expect a recession fairly soon and the Fed cutting short term rates in response.
1 posted on 02/09/2023 2:59:49 PM PST by lasereye
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To: lasereye

(inverted yield curve)

BidenDepression 2023


2 posted on 02/09/2023 3:02:25 PM PST by SaveFerris (Luke 17:28 ... as it was in the days of Lot; they did eat, they drank, they bought, they sold ......)
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To: SaveFerris

Democrat Depression 2024


3 posted on 02/09/2023 3:07:20 PM PST by guitar Josh
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To: lasereye

What are the chances we hear of the “revised numbers” that are much worse than reported?


4 posted on 02/09/2023 3:13:11 PM PST by airborne (Thank you Rush for helping me find FreeRepublic!)
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To: lasereye

An inverted yield curve actually means investors expect inflation to decline, so that interest rates do not need to be kept at high levels. While that is consistent with the possibility of a recession, it does not actually require a recession to occur.


5 posted on 02/09/2023 3:25:45 PM PST by babble-on
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To: lasereye

“An inverted yield curve means the bond traders expect a recession fairly soon”

“soon”. may be years.

“and the Fed cutting short term rates in response.”

Bond traders set the rates. You were correct in the first part of your sentence.


6 posted on 02/09/2023 3:33:16 PM PST by TexasGator (!!!)
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To: lasereye

Loving the no-risk untaxed income. FED won’t be cutting anytime soon and will still be raising so there’s plenty of time to keep cashing in.


7 posted on 02/09/2023 4:04:35 PM PST by SaxxonWoods (The only way to secure your own future is to create it yourself. 111 is the key.)
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