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Yield curve recession signal intensifies as war fuels ‘stagflation’ fears -Breaking

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© Reuters. One Ukrainian military serviceman walks in front of a school that was destroyed by the shelling. This is Zhytomyr Ukraine on March 4, 2022. REUTERS/Viacheslav Ratynskyi

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By Davide Barbuscia

NEW YORK (Reuters) -Recession concerns are showing up more prominently in the U.S. Treasury yield curve, as soaring commodity prices in the wake of Russia’s invasion of Ukraine fuel worries over inflation and slower growth.

Investors may have been anticipating a slowdown in economic growth, as the gap between 10-year and two-year yields was narrowest since March 2020.

Jonathan Cohn is the head of rates trading strategy and said that on a rolling basis for two months, the flattening rate has been at its extremes since 2011. Credit Suisse (SIX:).

For insight into America’s economy, market participants monitor the yield curve. Inverted curves, in which rates on short-term government bonds exceed those on long-term debt, have been proven to predict past recessions.

The Fed will tighten its interest rates regardless of slowing growth, according to the investors.

Although the market expects a 50 basis point rise in March, it has been priced out of recent weeks. However, there are still over 150 basis marks of tightening expected by February. [FEDWATCH]

Jeffrey Halley at OANDA is a senior market analyst in Asia Pacific. This refers to strong and weak inflation.

After a new round of sanctions by the United States that hit Russia’s oil refining and raised fears that their oil and gas exports may be affected, prices reached $120 per barrel on Thursday. This was their highest price since 2012.

Yet, growth is still strong. In February, U.S. unemployment fell to 3.8%, a new low for the country. Friday’s Labor Department employment report was closely monitored by the Labor Department. These numbers raise optimism that the economy can withstand increasing headwinds due to inflation, geopolitical tensions, and tighter monetary policy.

Nevertheless, flattening of the curve suggests this may not hold true.

Cohn, Credit Suisse: “Flattening is faster because the Fed sees inflation moderation as more important than backstopping risk appetite.”

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