Long-dated US Treasury yields have been erratic this year and this week the 10-year Treasury yield topped 3.5% for the first time in a decade. After the Fed raised interest rates by 75 basis points (basis points), 10-year notes hit 3.642% and 2-year Treasuries jumped to a 15-year high at 4.090%. The curve between the 2-year and 10-year notes shows that the odds of a deep US recession have increased and recent reports say bond traders have been “faced with the wildest volatility of their careers”.
2 quarters of negative GDP, blistering inflation and extremely volatile T-Notes
At the end of July, after the second consecutive quarter of negative gross domestic product (GDP), some economists and market strategists emphasized that the US is in recession. However, the biden administration disagreeing and the White House published an article defining the start of a recession from the perspective of the National Bureau of Economic Research. Additionally, blistering inflation has devastated Americans, and market analysts believe rising consumer prices are also portending a recession in the United States.
However, one of the biggest signals is the yield curve, which, through monitoring, measures long-term debt with short-term debt two and ten years Treasury bond yields. Many analysts believe that an inverted yield curve is one of the strongest signs of a recession. The inverted yield curve is unusual, but not in 2022 as bond traders struggled with a crazy trading environment that year. This week, 2-year and 10-year Treasury note (T-Note) yields broke records as the 19-year T-Note surpassed 3.5% for the first time since 2011 on September 19th. On the same day, the two-year T-Note hit a 15-year high for the first time since 2007, yielding 3.97%.
Despite the fact that such volatility in bond markets is usually a sign of a slowing US economy, professional traders should legal action The bond markets were exciting and “fun”. Bloomberg authors Michael MacKenzie and Liz Capo McCormick say that bond markets are “characterized by sudden and wide-ranging daily swings that typically present a benign environment for traders and traders.” Paul Hamill, Head of Global Fixed Income, Currencys, and Commodities Distribution Citadel Securities agrees with Bloomberg reporters.
“We’re right in the sweet spot because rates are really an interesting market and clients are excited to trade,” Hamill said Wednesday. “Everyone spends all day talking to customers and talking to each other. It was fun.”
Sovereign risk rises, 2-10-year T-Note yield curve slides to 58 basis points – BMO Capital Markets analyst says “investors are running out of havens”
However, not everyone thinks that stock and bond market volatility is just fun and games. bubbatrading.com chief strategist Todd ‘Bubba’ Horwitz, said recently that he expects a “50 to 60 percent discount” on the stock markets. Recent swings in US Treasury yields have market strategists concerned about looming economic troubles. In the first week of September, Michael Gayed, Editor and Portfolio Manager of the Lead Lag Report, warned that the unpredictable bond market could trigger a sovereign debt crisis and “multiple black swans”.
studies and empirical evidence show that a volatile US Treasury Note market is not good for foreign countries holding US T-Notes and dealing with significant debt problems. Because when US Treasuries are used for restructuring purposes and as a resolution tool, “sudden and wide-ranging daily fluctuations” can penalize countries that attempt to use these financial vehicles for debt restructuring. In addition, since the Covid-19 pandemic, massive US stimulus programs and the Ukraine-Russia war, sovereign risk has increased in a variety of countries around the world.
Also on Wednesday, Bloomberg contributors MacKenzie and McCormick quoted Ian Lyngen, head of US rates strategy at BMO Capital Markets, as the analyst noting that the existence of so-called financial safe havens is diminishing. “This will be a pivotal week for the Fed’s rate expectations through year-end,” Lyngen said shortly before the Fed behaved the federal funds rate by 75 basis points. Lyngen noted that there was a “[sense of investors] don’t want to be on the market for long. As we move to a truly aggressive monetary stance, investors are running out of havens.”
On Thursday, the yield curve between the 2-year and 10-year T-Notes slipped to 58 basis points, a low not seen since the deep lows in August and then 40 years ago, back in 1982. At the time of writing, the yield curve sits between the 2-year and 10-year T-Notes down 0.51%. The crypto economy is down 0.85% over the past 24 hours to trade at $918.12 billion. Gold prices per ounce are down 0.14% and silver down 0.28%. Equity markets opened lower Thursday morning as all four major indices (Dow, S&P500, Nasdaq, NYSE) posted losses.
What are your thoughts on the unpredictable bond markets in 2022 and the signals that the economy and safe havens are shaky these days? Let us know what you think about this topic in the comment section below.
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