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The 2-10 Treasury Yield Spread Note Has Been Inverted Since July 6, 2022

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18 comments on The 2-10 Treasury Yield Spread Note Has Been Inverted Since July 6, 2022

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3-Month to 30-Year

The 3-month to 30-year inverted on October 18, 2022 and has been inverted ever since.

Treasury Yield Spreads May 01 2022 to January 5 2023

The 2-year to 10-year inversion is one of the most widely followed recession indicators. It has been inverted continually since July 6, 2022.

The 3-month to 10-year inversion is even more extreme. It has been continually inverted since October 18, 2022. 

Terrible Economic Data

The December jobs report was anemic and the ISM services PMI was an outright disaster.

Although housing in the gutter and the rest of the economy sinking fast, the Fed is committed to a course of action to maintain credibility.

To steepen in the traditional sense first requires the curve to flatten. With the Fed holding rates higher for longer, that won’t easily happen unless the Fed panics due to a credit event.

Given that the Fed has repeatedly vowed to keep rates higher for longer regardless of economic slowing, do not expect the curve to steepen other than by deeper inversions until recession hits. 

For more discussion on this idea please see Hello Curve Watchers, the Yield Curve is Steepening, Just Not in the Normal Sense

Here is a key idea regarding the stock market:

This post originated on MishTalk.Com.

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Mike Shedlock

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18 Comments
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Directed Energy
Directed Energy
3 years ago
Is housing in the gutter? Huntsville had a huge boom and is now steady and healthy. Still tremendous job growth happening.
Redstone Arsenal and Cummings Research Park are in an absolute gold rush. Space and defense aren’t stopping anytime soon.
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RonJ
RonJ
3 years ago
Title of last night’s The Maverick of Wallstreet, Youtube: “Warning: The Fed CAN”T Cut Rates Even If They Wanted To!”
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RonJ
RonJ
3 years ago
“The 2-10 Treasury Yield Spread Note Has Been Inverted Since July 6, 2022”
Is that another record, in our recordly wacked out world?
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vanderlyn
vanderlyn
3 years ago
good analysis. i too, think we are a very long ways from inversions along the curve ending anytime soon. i think the fed is determined to reload their bazooka by jacking up rates. i think they have a ton of breathing room from the populists out there as jobs are plentiful. for now. larry summers has nailed this past 18 months, and thinks rates keep going up by fed. i think it’s great. debt investing finally makes sense after almost 15 years of zirp kookiness and griftering. r/e prices coming down fast on west coast and heading east. that’s great imho. for young folks and savers alike. many stocks make sense again, too. FX carry trade back after 15 years of missing. keep up good work mish.
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Sunriver
Sunriver
3 years ago
Well Mish, you picked $2,800 on the S&P 500.
You may be close by the time this all washes out. IF the FED keeps rates ~5% throughout 2023.
However, given pas experience, I would not be surprised to see large FED funds rate cuts and QE infinity back on the table in 2024.
It’s an election year in 2024 and Santa FED will be happy to oblige. They know no different.
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Zardoz
Zardoz
3 years ago
Reply to  Sunriver
If trump isn’t paid off to not run, the fed won’t need to juice the economy for Sleepy Joe. He can Sleepwalk to victory.
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8dots
8dots
3 years ago
We are almost in recession, we are there, but UST10Y minus UST2Y is down for two years, a nadir. // UST10Y minus DET10Y was in a trading range
for two years, but two weeks ago it was down to close Sept 28/Oct 5 2020 gap. The German 10Y is gaining strength. On Dec 27 DET 10Y popup to 2.56%. The trend is up. The German 10Y might be building a bubble to pricked one day. US10Y trending is up. They are in a bloody race to the top.
The Germans 10Y might beat US 10Y, because the inflation rate is higher in Germany. At zero gravity, both can rise in unison.
That’s not the case for the front end. The front end limit to the long duration rise…
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worleyeoe
worleyeoe
3 years ago
Reply to  8dots
The US economy is no where near a recession. If one arrives this year, it won’t be until the later 1/2 of the year and most likely not until the 4th quarter.
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MPO45
MPO45
3 years ago
Although housing in the gutter and the rest of the economy sinking fast, the Fed is committed to a course of action to maintain credibility.
Yup! And the play here is to keep buying high yield US Treasury notes and bonds because we all know at some point a cut will come and those bonds will be worth more. Once again, there are plays for everything the Fed does including buying long dated puts for the twitter comment about bottoms coming AFTER the first fed cut.
Got 2024 dated PUTS?
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8dots
8dots
3 years ago
Reply to  MPO45
Haircuts aren’t equal to Fed cuts : no cuts.
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Thetenyear
Thetenyear
3 years ago
Why do inversions predict recessions? Everyone says they do but no one explains why.
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Scooot
Scooot
3 years ago
Reply to  Thetenyear
It’s because long end yields fall in anticipation of rate cuts. Usually Central banks cut rates in a recession to stimulate the economy. Therefore you can lock in a higher rate before the rate cuts by buying long dated Securities which causes long dated yields to fall below shorter dated yields.
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shamrock
shamrock
3 years ago
Reply to  Thetenyear
Banks borrow short and lend long. That makes it harder to find profitable loans to make, and therefore there is less lending and a slower economy.
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Tony Bennett
Tony Bennett
3 years ago
“that won’t easily happen unless the Fed panics due to a credit event.”
…
Only a matter of time. Then it will be interesting to see how fast the other dominos start to fall … especially if government attempts to bail out … then hands will fold quickly to partake (before it runs out).
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MPO45
MPO45
3 years ago
Reply to  Tony Bennett
I must admit, I thought something would have started breaking by now but Frankenstein keeps walking. I have until January 2024 for Frankenstein to die from sickness and exhaustion.
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TexasTim65
TexasTim65
3 years ago
Reply to  MPO45
Frankenstein can’t die until people lose faith.
As long as they believe, he will keep walking even things are constantly fraying around the edges.
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Sunriver
Sunriver
3 years ago
Reply to  TexasTim65
FEDenstein
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SAKMAN
SAKMAN
3 years ago
Reply to  MPO45
The amount of money made along with long duration low rate loans in play means we need more time for the Emperor to show up naked.
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