A Recession Warning Sign? Part of U.S. Yield Curve Inverts for First Time Since 2006

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    • #479490
      • Total Posts: 1,122

      By Garfield Reynolds and Ye Xie
      Mon, March 28, 2022, 12:06 AM·1 min read

      (Bloomberg) — Treasuries slumped anew to send a widely-watched part of the U.S. yield curve to its first inversion in 16 years. The curve is flattening as investors bet the Federal Reserve will tighten policy rapidly enough to risk a sustained slowdown in growth.

      U.S. five-year yields climbed nine basis points to 2.63%, rising above those on 30-year bonds. Shorter maturities have been selling off faster than their longer-dated peers this year as investors ratchet up expectations the Fed will hike rates to combat inflation. The spread between five- and 10-year Treasuries inverted earlier this month.

      “Fed officials haven’t pushed back on aggressive market pricing yet, putting higher yields and flatter curves as the momentum play for now,” said Prashant Newnaha, an Asia-Pacific rates strategist at TD Securities in Singapore.

      The Fed raised its benchmark rate this month for the first time since 2018, and has pledged to keep hiking in a bid to slow inflation that was running at the fastest pace in four decades. Traders are betting the central bank will boost its benchmark by 200 basis points by year-end. Chairman Jerome Powell said last week the central bank was prepared to raise rates by 50 basis points in May if such a step was necessary to control price pressures.

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    • #479500
      Ohio Barbarian
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      Never let your morals stop you from doing the right thing.--Isaac Asimov

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    • #481964
      • Total Posts: 11,935


      When the government wants to borrow money, it can sell bonds. It’s basically an agreement saying that if you give the government money now, they’ll pay you back — with interest. But here’s the important part: The longer you agree to let the government keep your money, the higher the interest rate. So you make more money. That’s why this chart usually points upward, like this: https://cdn.vox-cdn.com/thumbor/JRAkutk7EER10yOOLprASG_Ea6Y=/0x0:1920×864/720×0/filters:focal(0x0:1920×864):format(webp):no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/19166452/normal.png

      This is called the “yield curve.” But sometimes, this chart does something like this: https://cdn.vox-cdn.com/thumbor/dFPK-mpLJq0blnvNKOZsmVryFDs=/0x0:1920×864/720×0/filters:focal(0x0:1920×864):format(webp):no_upscale()/cdn.vox-cdn.com/uploads/chorus_asset/file/19166457/inversion.png

      This is what investors call “inversion.” It isn’t normal.

      In fact, shortly before every recession in the past half-century, this is what happened. And it happened again in August 2019. But the really short version is: It’s treated as a thermometer for how investors are feeling about the economy two years out. And when investors aren’t feeling great about it, sometimes it can be a self-fulfilling prophecy — and help bring on a recession.

      Jesus: Hey, Dad? God: Yes, Son? Jesus: Western civilization followed me home. Can I keep it? God: Certainly not! And put it down this minute--you don't know where it's been! Tom Robbins in Another Roadside Attraction

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