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US Treasury Yield Curve Is One of the Most Inverted in History

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73 comments on US Treasury Yield Curve Is One of the Most Inverted in History

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Strong Recession Signal

  • Since 1990, the spread between 30-month T-Bills and the 10-year Treasury Note was only more inverted ahead of the 2001 recession.
  • Since 1990, the spread between 30-month T-Bills and the 30-year long bond has only been more inverted a couple of times. 

This is a very strong recession signal.

Reducing Inflation Without a Recession Might Not Be Feasible

It’s unusual for the Fed to be this candid but Kansas City Fed President Esther George says Reducing Inflation Without a Recession Might Not Be Feasible

“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there,” said Kansas City Fed President Esther George, who is set to retire in January.

Some of Ms. George’s colleagues have recently said that they still see a way for the Fed to bring inflation down without a serious downturn, but Ms. George was more circumspect in an interview Tuesday.

“I would love if there was that path, and I’ve seen people paint that path,” she said. “I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes.”

This post originated at MishTalk.Com

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73 Comments
Newest
Oldest Most Voted
DoctorFuture
DoctorFuture
3 years ago
Mish,
Thank you for all your selfless, hard work.
I hear a lot of talk about the average time duration that a bond inversion precedes a recession, but is there any typical average duration of time (or range) that the inversion stays in place, before “un-inverting”? Thanks!
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worleyeoe
worleyeoe
3 years ago
And at least this time around (thus far), it has no bearing on whether or not we hit a recession.
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whirlaway
whirlaway
3 years ago
“30-month T-Bills”? Or is it 3-month T-Bills?
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xbizo
xbizo
3 years ago
The direct relationship between rising short term rates and recession is to raise the cost of variable interest loans. Clearly we have much less of that debt than in 2007. Is there are way to assess total increase in interest? Is that number a few billion or 500 billion? Is it enough to cause zombie companies to go under? We have a lot of them. That is the question to me.
Long term rates are rising too. That kills off marginal capital investment. Still there’s lots of cash looking for a place to land and for capital projects moving forward, higher rates are inflationary because they need higher rents to make the ROI work out.
So, not seeing interest rate increases being very effective unless we get stop keeping marginal companies alive and let them fail. Will Biden come to the rescue of his union cabal and prop them up?
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Sunriver
Sunriver
3 years ago
Mish, glad you’re bringing the inversions into focus. This is nuts.

FED hikes say 0.50% in early December, and we will be above the 2001 yield curve inversion max of both the 30 yr minus 3 month and 10 yr minus 3 month difference.
A flight to US Treasuries, every time the FED hikes? Great for fixed income. Not so great for retail equity investors.
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MPO45
MPO45
3 years ago
Well bought another 30k of T-Bills today since there is nothing else to buy. I have lots of canadian oil stock covered calls likely going to get assigned tomorrow and I’m glad. I want to sit in cash as I’m hearing some very disturbing things about happenings in China. They are preparing for something huge and i don’t want to be on the wrong side of any investment right now. Good luck to everyone.
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hmk
hmk
3 years ago
Reply to  MPO45
Please tell what you have heard about China?
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MPO45
MPO45
3 years ago
Reply to  hmk
Companies have been ordered to sever all communications with the outside world.
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wmjack50
wmjack50
3 years ago
Reply to  MPO45
They did away with all English language schools over the last few years as well—CCP wants to isolate it’s population from truthful news only propaganda is allowed (kinda like what the Democratic party media does in USA)
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phil
phil
3 years ago
Reply to  MPO45
why didn’t you wait until after the December increase? I don’t mean to be snarky, at all. NOT! I’m waiting. Should I wait?
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hmk
hmk
3 years ago
Reply to  phil
just buy 3 months and roll over. the dec increase is already priced in.
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MPO45
MPO45
3 years ago
Reply to  phil
I have been buying 30k worth of 4, 8, 13 week t-bills for months now. It was money set aside for rental properties but I can’t find a cap rate I like so it’s been sitting in cash. I am waiting for the housing market to crash but it seems to be taking a very long time. I may torpedo the whole idea and just start laddering 20 year bonds at 4.5 or 5 percent.
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Rbm
Rbm
3 years ago

Mish are these the three issues currently causing inflation. 1 A shrinking work force and an aging population with wealth build up from from 2 generations of 401 ks still needing basic goods / services. Plus money to burn. 2 War driving up energy cost ie cost of those goods and service. 3Money printed during covid. Leaving it an open discussion trying to wrap my head around how these interact on each other and raising rates. 1 is gonna drive up wages2 is gonna drive up good services3 gonna drive up cost of everything. The new norm.

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MPO45
MPO45
3 years ago
Reply to  Rbm
Demographics is often the leading cause of rampant inflation despite all the conspiracy theories. In the 1970s inflation spiked because we had all the baby boomers (born 1945 to 1964) aged into family formation where they got married, bought houses and had kids.
We are now at that same point with millenials aging into family formation and on top of that we have boomers aging into retirement so it’ll be a double whammy for inflation. Two groups will be competing for medical services, housing, goods & services all the while the labor force is depleting. Throw energy volatility, Fed hiking, food shortages and war and it’s going to be one huge fiasco.
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Mish
Mish
3 years ago
Reply to  Rbm
add congressional stimulus to the mix
Mainly it was Congress, the Fed, Demographics
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8dots
8dots
3 years ago
The blue line 10y – 3M might drop a little further, testing (-)0.95 in 2001. It’s a spring. DX is testing Sept 7/12 trading range before cont down again. TY weekly have a selling tail today. TY might breach it’s 1987 to Jan 2000 lows support line and reach to the 105/95 BB range. With negative rates the Fed and the ECB cannot control inflation. Inflation might flare one day…
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RonJ
RonJ
3 years ago
Zero Hedge: “Bullard presented charts showing a sufficiently restrictive rate might be between about 5% and 7%…”
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Scooot
Scooot
3 years ago
Reply to  RonJ
I suspect they’ll want to get there quickly to have a clear run for election year. (The government that is.)
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Zardoz
Zardoz
3 years ago
Reply to  Scooot
It’ll be morning in America all over again
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8dots
8dots
3 years ago
Mish I apologize for calling u a community organization leader.
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Zardoz
Zardoz
3 years ago
Reply to  8dots
Yo mama is a community organizer.
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8dots
8dots
3 years ago
Raising rates to 5%-6% will be a futile attempt. Gravity with Germany will send the long duration down. The yield curve might be
more inverted. The Fed have to coordinate their move with madam ECB.
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Salmo Trutta
Salmo Trutta
3 years ago
I’m surprised that there’s no clamor for a country-wide Proposition 13.
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klausmkl
klausmkl
3 years ago
Mish, I apologize to you for a comment I made years ago when I was speaking up for Trump. I was way wrong.
I read on Bloomberg that every time this yield cirve inverted a massive recession took place like 12-18 months later.
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MarkraD
MarkraD
3 years ago
Reply to  klausmkl
“I read on Bloomberg that every time this yield cirve inverted a massive recession took place like 12-18 months later.”
This would go hand in hand with the latency of Fed policy, the difference being that the Fed is intentionally slowing growth to tame inflation.
In that sense, as long as the Fed knows to soften or pivot at the right time we could avert a recession, at least a hard recession.
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klausmkl
klausmkl
3 years ago
Reply to  MarkraD
good valid point, tHANKS
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  klausmkl
Historically correct, when some semblance of market existed, but these times are different.
The government control of the economy can only be compared to CCP.
If it went dangerously down, pour in a few trillions, and screw those who are not playing in some market, or future generations.
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Mish
Mish
3 years ago
Reply to  klausmkl
Apology accepted
I do not even recall it. Many people blasted me over Trump, especially on Twitter.
There were no TDS call on Twitter over my recent Trump posts, just here with those afflicted with TDS type II.
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Salmo Trutta
Salmo Trutta
3 years ago
Everything syncs up. Just think what happens when Biden institutes CBDCs. There goes the underground economy.
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Matt3
Matt3
3 years ago
Reply to  Salmo Trutta
This has to be coming. It’s the best way to steal wealth and gain absolute control. The FTX fraud is a perfect setup to bring this forward. Then they can use the new 87,000 IRS agents to track down and collect (confiscate) what is needed.
It will all be done “for your own good”.
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Zardoz
Zardoz
3 years ago
Reply to  Matt3
Careful! They’re watching you!
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KidHorn
KidHorn
3 years ago
Reply to  Salmo Trutta
Digital currencies aren’t a problem. Almost all money is digital now. I think only about 6% is cash. If they eliminate cash, that will be an issue, but I doubt they would. Politicians have a need for cash as much as anyone.
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Captain Ahab
Captain Ahab
3 years ago
Of course, the Fed will never say a deep recession is the goal.
When you flood the financial markets with trillions of unearned dollars (zeroes on a balance sheet) and cause inestimable transfer of wealth, induce overpricing of assets, and encourage capital investments with low rates of return, ‘there will (must) be bloodshed’.
Now, we play ‘chicken’.
My bigger fear is what Klaus Schwab discussed at the G20.
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RonJ
RonJ
3 years ago
Reply to  Captain Ahab
“My bigger fear is what Klaus Schwab discussed at the G20.”
I have never been invited to one of these confabs, but aren’t they supposed to be between government leaders? Schwab runs an NGO.
Democracy is dying in darkness. An NGO should not control the world.
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Maximus_Minimus
Maximus_Minimus
3 years ago
Reply to  RonJ
He operates Davos, a country retreat of billionaires and wannabe political movers and shakers. Arguably the most influential NGO.
Lula da Silva hosted anti-Davos. Now that he’s back in power and dark times ahead, maybe he will scare the daylight out of the billionaire club.
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Karlmarx
Karlmarx
3 years ago
Inversions are correlated with recessions not causal. Except for weapons exports to fight a proxy war with Russia the economy is in the proverbial loo.
No doubt we are in recession and have been so since at least early last spring – and likely even earlier.
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Billy
Billy
3 years ago
Reply to  Karlmarx
That’s only if you are using the government’s old definition of recession.
If you keep talking like that I’ll be forced to report you to Biden’s Disinformation Governance Board.
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MarkraD
MarkraD
3 years ago
Reply to  Karlmarx
“No doubt we are in recession and have been so since at least early last spring”
One with near 11 million excess jobs.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  MarkraD
Employment a LAGGING indicator.
Anyway, latest JOLTS for September … a lifetime ago.
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MarkraD
MarkraD
3 years ago
Reply to  Tony Bennett
“Employment a LAGGING indicator.”
As is the stock market, usually by 6 months, and yet 11 million spare jobs 11 months since the SPX high.
The difference being this is an intentional slowdown, you cannot compare this to past slowdowns, nor predict as such.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  MarkraD
“The difference being this is an intentional slowdown, you cannot compare this to past slowdowns, nor predict as such.”
…
If you think Federal Reserve is sole reason for slow down, you’re wrong.
I’ve been watching (carefully) the inventory build since Summer 2021. Inventory corrections most often lead to recessions.
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Karlmarx
Karlmarx
3 years ago
Reply to  MarkraD
Recessions have to do with the business cycle and not jobs.
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RonJ
RonJ
3 years ago
Reply to  Karlmarx
Unless the government locks down the economy for a treatable virus, or climate change.
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Zardoz
Zardoz
3 years ago
Reply to  RonJ
Or the kooks get restless
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RonJ
RonJ
3 years ago
Reply to  Zardoz
Antifa seems quiet these days.
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ajc1970
ajc1970
3 years ago
Reply to  Karlmarx
We need a new term to distinguish between “recession” and “permanent downward adjustment to middle class buying power”
People can still work but the quality of life in the US is finding its equilibrium with that of the countries where we exported many of our skilled jobs
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  ajc1970
That equilibrium has been adjusting since 2002-3 and the export of jobs to Asia/India.
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ajc1970
ajc1970
3 years ago
Reply to  Lisa_Hooker
yes, I agree
My assertion stands
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Matt3
Matt3
3 years ago
I have spent some time in community banking and we would have the Fed (regulators) come in and ask us plans for an instant 300 basis point rise in rates. We would prepare this but it was ugly as loans and securities needed to be marked to market with big losses. My question was what would the Fed balance sheet look like? I’m out of banking, thankfully, but I still wonder about the Fed balance sheet. All of the long term securities have to be sitting with huge losses. Does this matter if you’re the Fed? At rates over 4%, how long can the US government finance the debt without the Fed being the buyer? At what point will interest become the biggest line item expense for US government? What about the States? They can’t just print away.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  Matt3
I was saying much the same thing months ago. Technically, there will be no bankruptcy; because of magic zeroes and no mark-to-market. However, the underlying problem cannot be fixed, just plastered over because politicians do not have what it takes to gut Federal budgets.
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Billy
Billy
3 years ago
Reply to  Matt3
“They can’t just print away.” -according to MMT you can.
About 10 years ago I heard a prediction that interest will be 50% of our budget by 2030.
The problem is no one would get elected if their goal was to pay down the debt.
It’s as if we are at a giant party and we are the only sober ones.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  Billy
I disagree. It takes real leadership. We have not had the right person at the helm for many years.
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hmk
hmk
3 years ago
Reply to  Captain Ahab
If you think about it Clinton was the last fiscally conservative president we’ve had.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  hmk
Clinton did what Newt Gingrich told him to do. The alternative was impeachment. Clinton as fiscal conservative is a progressive media fiction.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  Captain Ahab
No, hmk correct.
Yes, the “Republican Revolution” of 1994 played a role … but 2 other key factors.
1) An era before Federal Reserve went full blown activism … and bond vigilantes watching carefully.
2) No War Mongering. After Bush Sr lost – but before Clinton took office – he put troops into Somalia. Leading to Black Hawk Down debacle. Clinton got the blame and did his best to avoid casualties rest of term (cruise missiles were the solution to any and all problems … that is, until along came W + Cheney).
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WarpartySerf
WarpartySerf
3 years ago
Reply to  hmk
And the last child rapist President, too.
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KidHorn
KidHorn
3 years ago
Reply to  Matt3
The FED doesn’t care about profit/losses. If their balance sheet has losses, all it means is they would have to sell more securities for a given amount of QT.
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Tony Bennett
Tony Bennett
3 years ago
Negative real earnings j6p using credit card to make ends meet. Will this end well??
“The first three quarters of 2022 have seen a rapid increase in credit card balances, after they contracted sharply during the early part of the COVID pandemic. The chart below depicts the year-over-year percent change in credit card balances—the 15 percent increase seen in the third quarter of 2022 towers over the last eighteen years of data.”
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Tony Bennett
Tony Bennett
3 years ago
Consumer speaking … loud and clearly:
said Brian Cornell, chairman and chief executive officer of Target Corporation. “In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty. This resulted in a third quarter profit performance well below our expectations.
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KidHorn
KidHorn
3 years ago
Reply to  Tony Bennett
I think Target reported theft loses in excess of $400 million so far this year.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  KidHorn
Who we gonna call? Door-Busters! Aka BLM. Thank you, Democraps.
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Captain Ahab
They need to do some research to determine the optimum number of participants in a flash shoplifting mob. You know, quantity/value of proceeds vs legal costs. I understand in California the legal costs are very low.
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Tony Bennett
Tony Bennett
3 years ago
Reply to  KidHorn
When your card gets declined … whatcha gonna do? …
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Lisa_Hooker
Lisa_Hooker
3 years ago
Reply to  Tony Bennett
HELOC?
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Tony Bennett
Tony Bennett
3 years ago
Last week I had a sit down with my local bankster (small regional bank).
He mentioned they’re battening down the hatches (increasing loss reserve) for 2023.
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Tony Bennett
Tony Bennett
3 years ago
Financial conditions tightening … where will that lead? …. (hint: credit + job losses)
Now that stimulus / forbearance / moratorium over … delinquencies arising.
“The share of current debt becoming delinquent increased for nearly all debt types, following two years of historically low delinquency transitions. The delinquency transition rate for credit cards and auto loans increased by about half a percentage point, similar to increases seen in the second quarter.”
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Tony Bennett
Tony Bennett
3 years ago
“I’s unusual for the Fed to be this candid”
…
said Kansas City Fed President Esther George, who is set to retire in January.
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KidHorn
KidHorn
3 years ago
I think the inversion has more to do with expectations of future FED rates dropping and the FED doing QE than it has to do with future GDP expectations. Current rates will eventually bankrupt our government.
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Captain Ahab
Captain Ahab
3 years ago
Reply to  KidHorn
The other way of adjusting the yield curve would be by rewarding savers with a fair return given inflation and real growth (expectations). That is, let the market set interest rates, with no Fed finagling/funding the debt by zero-addition.
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Billy
Billy
3 years ago
Reply to  Captain Ahab
I think the Fed enjoys playing God with the financial laws of nature.
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radar
radar
3 years ago
Reply to  KidHorn
Government can raise taxes to stay afloat.
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KidHorn
KidHorn
3 years ago
Reply to  radar
Has never worked. Raising taxes discourages income.
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radar
radar
3 years ago
Reply to  KidHorn
I understand. I’m not saying it makes sense or would be a good move, I’m just stating the government will never have to default on debt as long as it can collect taxes.
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