According to one closely watched measure, the bond market is signaling that the economy may be falling.
The spread on the Treasury yield curve is watched by market pros. The yield on the 10-year note is usually higher than the yield on the two-year note. The two-year yield is now above the 10-year yield.
The yield on the 2-year Treasury was above the yield on the 10-year. This is where you can watch this key spread in real time.
There is a chance that the economy could be in a recession.
IanLyngen said there is something afoot in investor sentiment that is difficult to ignore. I don't think it's a sign that a recession is imminent. It is consistent with increased concern about the economy.
Think about what the yield curve means for a bank and how important it is. The yield curve is a measure of the spread between a bank's cost of money and what it will make by lending it out. Economic activity is slowed if banks can't make money.
After a burst higher to nearly 3.5% in mid- June, the 10-year yield has slumped to 2.78%, and was hovering just below the 2-year note's 2.79% yield. As investors became more worried about the economy, the 10-year reversed course. The yield moves opposite of the bond price.
Mortgages and other lending rates are influenced by the benchmark 10 year. The 2-year has moved higher because of the Federal Reserve's interest rate hikes.
Gregory Faranello is the head of U.S. rates at AmeriVet Securities. There is a fight going on between inflation and growth. I think it's inflation over growth.
The curve inverted twice in June. The curve was inverted in the middle of the year warning of a recession. He said that if it wasn't for the Pandemic, the recession wouldn't have happened in 2020.
Some investors and economists would like to see the inversion last for a long time before they think it is a recession.
The market has become more cautious due to the possibility of a recession. The Federal Reserve is steadfast in its fight with inflation even though economic data has weakened. The investors are worried that the Fed will raise interest rates so much that it will cause the economy to go into recession.
While the market has become fearful, many Wall Street economists do not think the economy will go into a recession this year.
According to Faranello, Powell was recently asked about the yield curve. He said that they were not worried about that at the moment. Bringing inflation down to 2% is a concern for us. Faranello said that the Fed is not concerned about an inverted yield curve.
The Atlanta Fed's GDPNow i ndicator predicts that the second quarter gross domestic product will contract by 2%. Incoming data is used to forecast the future. It would be the second negative quarter in a row if the second quarter does contract.
The closer it is to the print, the more credible it becomes. In the first quarter, growth contracted.
There has been a better than two-thirds chance of a recession at some point in the next year and a greater than 98% chance of one in the next two years.
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