Yield Curve Inversion: US Bond Market Hints at Recession

Bulletpoints:
• The US10Y-US02Y yield curve is deeply inverted, similar to the 1980s levels.
• The 2/10 spread has inverted almost 30 times since 1900, leading to a recession 22 times.
• The 3m10y spread has reached a -100 bps inversion, the deepest in several decades.

The US bond market is showing signs of inversion, which could indicate an impending recession in the latter half of 2023 or early 2024. The US10Y-US02Y yield curve is deeply inverted, similar to the levels seen in the 1980s. This inversion from 3 months to 10 years is double as bad as the levels seen during the Global Financial Crisis.

The 2/10 spread has inverted almost 30 times since 1900, and in 22 instances, a recession has followed. This means that there is a high probability of a recession occurring in the near future. Furthermore, the 3m10y spread has reached a -100 bps inversion, which is the deepest in several decades. This inversion points to a major policy error that the Federal Reserve has made, as they have broken inflation but could also break the economy.

The deep inversion of the yield curve could have huge implications for the economy. It could mean that the US economy could be heading towards another recession, and it could also mean that monetary and fiscal policies will have to be adjusted in order to prevent this from happening. The Federal Reserve has already made a number of moves to try and stabilize the economy, but it remains to be seen if these will be enough.

It is important to keep an eye on the US bond market, as it could be an indicator of what is to come. If the inversion continues and deepens, then it could be a sign that a recession is on the horizon. It is up to the Federal Reserve and other policy makers to take the necessary steps to prevent this from happening.