Mish: Inverted Yield Curve Means Recession This Year

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From MishTalk: 

The long end of the yield curve rallied strongly on Tuesday with the middle of the curve pricing in more hikes by the Fed. More inversions signal a recession sooner rather than later.

 

Yield Curve data from the New York Fed as of 2022-03-29, yellow highlights mark Inversions, chart by Mish

Yield Curve data from the New York Fed as of 2022-03-29, yellow highlights mark Inversions, chart by Mish

The highly watched 2-10 spread was positive 6 basis point (2.41 minus 2.35) as of the close on March 29 having briefly inverted (negative) intraday.

Yield Curve Spreads Since January 2021

Yield Curve data from the New York Fed as of 2022-03-29, chart and calculations by Mish

Yield Curve data from the New York Fed as of 2022-03-29, chart and calculations by Mish

About a year ago the 2-10 spread was 159 basis points and is now just 6 basis points.

Yield Curve Spreads Since January 2022

Yield Curve data from the New York Fed as of 2022-03-29, chart and calculations by Mish

Yield Curve data from the New York Fed as of 2022-03-29, chart and calculations by Mish

Six Inversions 

  • 20-Year to 30-Year: 15 Basis Points
  • 7-Year to 10-Year: 9 Basis Points
  • 5-Year to 10-Year: 8 Basis Points
  • 5-Year to 3-Year: 5 Basis Points
  • 3-Year to 10-Year: 13 Basis Points
  • 3-Year to 30-Year: 1 Basis Point
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Inversions (shorter-duration bonds yielding more than longer-duration bonds) are a sign of a weakening economy and a recession.

The most widely watched recession harbinger is the 2-10 spread which briefly inverted intraday on March 29 but finishing the day at a positive 6 basis points.

Recession Coming

A recession is on the way. The only question is whether it hits in 2022 or 2023.

The answer to the question “when?” depends on how fast the the Fed hikes and how resilient the housing and stock market bubbles are to Fed hikes.

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2022 is looking increasingly likely.

Meanwhile the housing bubble keeps expanding while the stock market shrugs off the expected hikes.

For more on housing, please see 2021 Set New Annual Records for Home Prices. 2022 Continues the Trend.

This post originated on MishTalk.Com.

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