Yield Curve Inverts. Biden Recession Next?

In terms of the yield story. You’ve mentioned the yield story. We continue to see those yields moving higher. Or I see that across the treasury curve, we’ve seen a key inversion though in one part of the treasury curve, we’ve had this conversation a number of times though when we’ve been talking about different parts.

So what difference does it make that today? We’re seeing another area of the treasury curve invert the fives thirties. What difference does? I’m going to really upset you about it. It makes no difference. The five-year 30-year version, I think is massively over-hyped. It is not a great indicator of a recession in the economy.

People tend to watch the three-month 10 years, the two-year tenure, and the five-year 30 or yes is often watched, but it’s not the classic kind of straight-through delineation that there will be a recession upcoming. Stars. It didn’t invert before the last recession we just saw. And the recession before that it was, uh, it took about two years until we finally got a recession.

So the five-year 31 five-year 30 year in version is not a great indicator to watch. I way prefer the two years, 10 years or the three months, 10 years. However, it does indicate that the curve continues to flatten overall and therefore the more important than versions may be. Okay. So we’ll watch her further inversions, but it’s part of that broader narrative.

What do you think he’s weighing on stocks than in terms of the US futures feature? I mean, not great moves, but certainly moving to the downside in early trading, easy to do with China, we’re putting China or Macron back on the radar or a stocks paying attention to what’s going in bond markets increasingly.

I think it is about bond markets. I think these moves really are quite extraordinary. We know this is a theme and just because we know it’s there, it doesn’t mean it can’t impact. Financial conditions are tightening really, really rapidly. And in a pace that even a couple of weeks ago, when we were getting excited about how quickly they’re tightening, we couldn’t have imagined they could jump at these kind of levels.

The move in front end yields in the U S is really quite extraordinary. I think that markets should be paying a little bit more attention to what’s happening in China in relation to the COVID situation. But at the moment, I do think it’s more about the. Okay. And what about what the BOJ has been doing and its ability to cap yields?

Because is that going to be something that other central banks are interested in or, uh, you know, the BOJ has been happy to go its own way for, for many months, many years, perhaps it is having an impact on the current summer. Yes completely. This is one central bank that is working really proactively to try capping its yields.

It’s stepped into, by an infinite amount of bonds, again, to kind of maintain its yield curve control 0.2, 5% of the tenure, but the market is not getting dissuaded. The market is basically saying to the BOJ that ultimately they’re going to have to back off from the policy they’re going to have to change their policy.

The market is saying to the BOJ, there is an inflation problem. There is a global inflation problem. Yes, Japan may have less this problem, but you can not have yields down here. The size of debt. You’ve got the amount of debt you got when global yields are rising at the moment while the BOJ calf, those yields maintains those yields.

We are seeing that yet. Weakness, people thought the move recently have been extraordinary. It’s got even worse. We’ve seen them most weakening in the end for more than five years. And it continues to be really vulnerable given what the BOJ.

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