NEW YORK (Reuters] – The yield curve’s key component was reversed on Tuesday when the yield of 2-year U.S. Treasury notes briefly rose above the benchmark, for the first times since September 2019.

A significant indicator that recession may be coming in the next one to two year is an inversion in the 10-year-long curve. The curve 2s/10s briefly displayed a minus 0.03 base point.

COMMENTS

JACK JANASIEWICZ – LEAD PORTFOLIO STRATEGIST NATIXIS MANAGERS BOSTON

“The yield curve thing is front and center, that’s all I get questions about. This is a jokey response. However, if there were one indicator that could accurately tell us about the direction and direction of equity markets and the economy, this would be me, sipping pina Coladas on the beach. The bottom line is that it’s difficult. Each yield curve (each one) will tell you something different.

“The twos versus 10s has a pretty good track record of calling recessions going out. Point being, there’s a lot of things that are very different today. One possibility is that quantitative easing has suppressed the 10-year-and-out portion of the curve. It could be that because we are starting from a low level it is easier to reverse the curve.

“There’s a lot of reasons technically speaking, maybe why the long end is depressed and that’s making it much easier for the curve to invert. So we always say ‘listen, if the technicals might be polluting the yield curve at this point, is it a tell to us?

ELLISPHIFER, MANAGING DIRECTOR FIXED INCOME RESEARCH RAYMOND JAMES MEMPHIS, TENNESSEE

“While I think the ultimate result of an aggressive Fed tightening cycle is a recession, I do not expect it to occur quickly. Inversions of 2s10s have been a hallmark of all recessions. However, not all inversions lead to recessions. Inversions have occurred more often than there has been a recession. Preceding recessions, inversions usually occur 13 months before the actual recession. The recession does not typically begin until after the Fed completes its hiking cycle and the yield curve begins to climb again.  If the timing is similar to history, the recession will begin roughly about this time next year.”

LOU BRIEN, MARKET STRATEGIST, DRW TRADING, CHICAGO

“The 2s/10s is interesting because I think you can look at the 10-year as an expression of what kind of economic growth is anticipated, and the two-year is more tied to Fed activity. So, for instance back in the 2004 – 2006 rate hike cycle, the fed funds went up from 1% to 5.25%, and during that time, the 425 basis point rise there and the commensurate rise in the two-year note yield, the 10-year essentially did nothing…. It was still over a year before the recession hit, but this indicates slower growth. And in part the slower growth is a function of that in the sense that a lending institution doesn’t necessarily want to loan for 5 or 10 years at a level that’s below what he’s borrowing at. So, it’s both an expression of and a function of slower growth.”

JOE MANIMBO, SENIOR MARKET ANALYST, WESTERN UNION BUSINESS SOLUTIONS, WASHINGTON

“The movements in the twos and the tens are a reflection that the market is growing nervous that the Fed may not be successful in fostering a soft landing. For one, the Fed has signaled that they could raise rates aggressively and that’s coming against a backdrop of expectations for growth to moderate this year already.”

ART HOGAN, CHIEF MARKET STRATEGIST NATIONALSECURITIES NEW YORK

“The yield curve inverting and predicting a recession has had a lot of false positives. It is absurd to me that people claim it was inverted in 2019, and then say, “Oh look, we entered a recession in 2020,” as though it foresaw a pandemic. It is common to call the time between inversions and recessions anywhere from 12-24 months. Six months have been the shortest and 24 months has been the longest so it’s really not something that is actionable for the average folks. So it is something to talk about until we don’t. The folks that really care about it look at the 3-month, 10-year spread which is at about 185 basis points.”

RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, A FAMILY INVESTMENT OFFICE, NEW VERNON, NEW JERSEY

    “The stock market view that we’re not in for a recession is more likely to be true than the bond market view that we are. The economy is adapting to rising prices, as you can see. It is still bursting with liquidity.

    “The Russia, Ukraine situation is far from settled in any way. Much depends on the outcome of energy.

JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL MANAGEMENT, CHICAGO

    “This is one more item that the bond market is concerned about that the equity market is shrugging off.”

    “The bond market is sending multiple warning signals that the stock market has essentially shrugged off.”