Authored by Simon White, Bloomberg macro strategist,
At least one key segment of the Treasuries yield curve suggests the US economy will enter a recession as early as June.
The spread between 3-month and 30-year yields — typically the first part of the curve to steepen before a recession — continues to widen.
This is a warning sign because inverted yield curves precede recessions, but it’s the re-steepening that signals the downturn is going to hit sooner rather than later.
Historically it is the 3m30y yield curve that has started steepening first before a recession, beginning to rise about five months before its onset. It began in mid-January, which would put a downturn starting as early as June. The spread between 3-month and 30-year yields is about minus 84 basis points, versus the January low of minus 115 basis points.
This time around, the rise in long-term yields is particularly troublesome because it suggests the bond market is beginning to price in structurally high inflation.
The closely watched 2s10s curve is still inverting, recently hitting a new low. But as the chart shows, 2s10s along with most other yield-curve segments, only begin to steepen just before the recession begins.
Tyler Durden
Fri, 03/03/2023 – 08:25
