The short-term bond spread is, according to the Federal Reserve chairman, the market’s most reliable signal of an economic contraction.
The preferred bond market signal of the Federal Reserve over one next recession HE collapsed to new lowswhich reinforces the case for those who believe that the central bank will soon need to cut interest rates to revive economic activity.
The Fed technical research indicates that the “short-term bond spread”which compares the return on Treasury debt 18 months from now with the current return on a security three months from now, is the market’s most reliable signal of an impending economic contraction.
That differential, which was in negative figures since November, plunged to new lows this week, standing at almost -170 basis points last Thursday.
What does this drop indicate?
He Fed Chairman Jerome Powellsaid last year that US Treasury yield curve at 18 months it was the most reliable warning of a coming recession.
“Powell’s Curve…continues to fall to new century lows”they said rate strategists William O’Donnell and Edward Acton of the citi, about. The data from refinitiv showed that the curve has the most accentuated inversion at least since 2007.
Fears of a recession have increased in recent weeks and investors fear that the turbulence in the banking system sparked by the Silicon Valley Bank bankruptcy in March tighten credit conditions and hurt growth.
The Fed, which embarked on one of its most aggressive rate hike cycles in decades to beat inflation last year, estimated that borrowing costs will remain around current levels until the end of 2023.
But market participants believe that tighter monetary policy is already starting to hurt growth and they are betting on rate cuts by the end of this year.
Source: Ambito
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