US yields: The recession indicator continues to flash red signs


US 2s-10s fell to just under 8 bps overnight before sitting near 12 bps today


When the bond market was rallying strongly at the start of North American trading yesterday, global recession alarm bells were going off left, right and center.

The US 2s-10s in particular continues to point towards the risk of one as the spread fell to just under 8 bps overnight before recovering slightly to ~12 bps today.

At this point, it is looking inevitable that it will eventually reach a 0 bps spread and prompt recession fears – considering its accuracy in the past in preempting one.

The question now is that, will this time be different?

For now, the Fed doesn’t seem overly concerned but the worry here is that this could very much be a self-fulfilling prophecy if market participants believe in it enough.

I reckon it’s hard to say if we’ll be seeing different circumstances in this day and age but if anything else, expect markets to adopt a more defensive approach in the bigger picture once the threshold is breached.

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