Yield Curve Inversions Return, Signaling Another Recession Warning

Treasury yields from the New York Fed, chart by Mish

These inversions are strong recession warnings although the spreads are small and the most watched 2-10 spread is still positive.

However, the 3-year, 5-year, and 7-year notes all yield more than the 30-year long bond. 

Curiously, the 20-year note yield is way out of line with everything else as the following chart shows.

Yield Curve to Scale

Treasury yields from the New York Fed, chart by Mish

The first bar is the Effective Fed Funds rate at 0.83%. Every following bar represents three months. Values between years are extrapolated evenly. 

From three years to thirty years the yield curve is flat to inverted except for the 20-year note. I am not aware of anyone with an explanation for curious behavior.

Yields at the short end of the curve rose sharply vs the longer-term notes following the consumer price report. That led to the inversions shown above. 

Why Did Economists Blow the CPI Forecast So Badly This Month?

For discussion of the May CPI report. please see Why Did Economists Blow the CPI Forecast So Badly This Month?

Also note the national price of gas topped $5.00 today for the first time. Yesterday I reported the Average Gas Price Just a Penny Shy of $5.00 a Gallon

This post originated at MishTalk.Com.

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FromBrussels
FromBrussels
1 year ago
Recession, inflation, financial meltdown or whatever is in the cards as a consequence of decades of utterly INSANE economic policy by western CBs actually don t worry me much …..What DOES worry me though, HOW is the US going to sort out the MESS it created in fn basket case Ukraine ?? Russia’s annihilating of the corrupt US supported Nazi regime is now a FACT ! So what s next ? I guess americans feel quite safe at the other side of the pond, but YOU, together with your UK, equally financially decrepit, warmonging friend are fcking up Europe big time, so what you gonna do next ? Send more arms , that will be destroyed on arrival ? Do you really wanna risk nuclear war over your totally insignificant far away (again) colony called fn Ukraine ?? This is not WW2 , this time , when your push comes to shove , Russia will nuke the sh*t out of you too if you push things too far ….Stop being your worst enemy, NOW is the time to reconsider , Russia won t back off …that s for sure, and they shouldn t for that matter …It s all up to you, so you, american people, should hit the streets and PROTEST like you did during the Vietnam debacle which was merely peanuts compared with the war you are now, allegedly indirectly and definitely illegally, waging at Russia’s border within Russia’s legitimate sphere of influence ! GET YOUR FN FATA$$ES OUT OF EUROPE !
Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  FromBrussels
Sheesh! Cool your jets!
I don’t think there’s a high risk of nukes, but not zero.
More likely is that the US/UK will support Ukraine with weapons and money until all the Ukrainians have left or are dead.
Captain Ahab
Captain Ahab
1 year ago
Reply to  Lisa_Hooker
The risk is actually high given President Cluster Fudge and Democraps will do whatever it takes to retain control. I make this statement based on Russiagate–appalling treason at the highest level of the Democrat mafia.
Donbass is done. Zelensky has few options at this point. One is to double down.
Tee Canker
Tee Canker
1 year ago
Reply to  FromBrussels
Please have EU to stop hiding behind USA.

Then we can tell Sleepy Joe to stop playing this game.

He thinks he is rescuing crying Euro maidens.

FromBrussels
FromBrussels
1 year ago
Reply to  Tee Canker
you got that wrong, the US wants to control the EU, doesn t want us to have good ties with Russia …..
Scooot
Scooot
1 year ago
“Curiously, the 20-year note yield is way out of line with everything else as the following chart shows.”
This is my guess as to why but I stress it’s only a guess.
There is a 10 year and 30 year futures contract but not a 20 year as far as I’m aware. Therefore it’s the 10 and 30 year terms that would attract the most speculative position taking in the long end. In addition it’s very easy to duration match a 10 year bond with 10 year futures as it is a 30 year bond with 30 year futures. However hedging a 20 year bond isn’t quite so straight forward as they’d be a little bit of yield curve risk depending on the mix of 10 and 30 year futures you decided to use. Therefore the 20 year part of the curve is less popular and slightly cheaper.
Mish
Mish
1 year ago
Reply to  Scooot
Good Guess.
Lacy Hunt is hurting
Avg maturity around 20 years – of course avg maturity does not imply 20-year bonds.
Six000mileyear
Six000mileyear
1 year ago
Reply to  Scooot
What you’ve described implies bond traders fear a liquidity trap.
Lisa_Hooker
Lisa_Hooker
1 year ago
Reply to  Six000mileyear
But doesn’t everyone fear a liquidity trap? I know I do. I have bills to pay like everyone else.
Scooot
Scooot
1 year ago
Reply to  Six000mileyear
No not really, just convenience.
Scooot
Scooot
1 year ago
Reply to  Six000mileyear
Look at it another way. If I was making a market in the 20 year, I might be inclined to price not to get hit on the bid, so I could turn it quickly if I did, or to give myself a little a bit of leeway if I had to hedge it. If all market makers did this it would get a little cheaper until buyers thought it had gone too far.
Tberend
Tberend
1 year ago
Reply to  Scooot
Scooot, I think you are correct. 20 year is less utilized as a benchmark as well (for corporate issuance). Pre-2020, the US Gov didn’t even issue the 20 year since the 1980s. Liquidity is lower, which is something Mish talks about quite frequently.
On futures, a quick google search shows that the CME does offer a contract for 20 year. However, this has only existed since March 2022
Scooot
Scooot
1 year ago
Reply to  Tberend
“On futures, a quick google search shows that the CME does offer a contract for 20 year. However, this has only existed since March 2022”
That’s interesting, if the bid, offer spread of the 20 year is the same I’d think it might gradually tighten now. I’ll watch it out of curiosity.

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