Recent market activity indicates that bond traders predict a U.S. recession.
A
sharp rise in the bond yield curve shows a widening gulf between the
economic expectations of the U.S. Federal Reserve (Fed) and those of
private investors.
- The bond yield curve is headed for its sharpest monthly increase since the 2008 financial crisis.
- Two-year bond yields briefly fell below the rates for 30-year bonds for the first time since September.
- The change reverses the bond-yield inversion earlier this month, which was viewed at the time as evidence of an upcoming recession.
- The reversal of the inversion may imply that a recession is now imminent.
- The
latest rise in the bond yield curve was driven by expectations that the
Fed would pause interest rate hikes and even cut rates due to recent bank failures.
- Bond markets have failed to reliably predict Fed policy over the last year and may also be unreliable as an economic indicator.
- Fed Chair Jerome Powell signaled last week that he was not considering rate cuts for 2023.
