Recession indicator in the US bond market reaches historic levels – WORLD

Concerns about global economic growth were heightened by the Russo-Ukrainian war and high inflation, while the gap between 2-year and 10-year yields, one of the strongest indicators of a recession in the US bond market, was minus 75 basis points. , the strongest sign since October 5, 1981.While the yield curve showing the relationship between bond yields has shown the same trend, especially before every recession in the US economy, the difference between 2-year and 10-year bond yields has reached its most negative level since Ronald Reagan was President of the United States in 1981. Investors are in the $24 trillion bond market. He closely monitors parts of the yield curve as an indicator of a recession, including the difference between 2-year and 10-year yields.The 2-year US bond yield closed at 4.51% yesterday, while the 10-year yield was 3.76%. Thus, the difference between the 2-year and 10-year yields was minus 75 basis points. Volcker on October 5, 1981, when the Federal Reserve was chairman of the U.S. Federal Reserve, the Federal Reserve’s discount rate was 19 percent, inflation was 10 percent, and the difference between the 2-year and 10-year bond rates was fixed at minus 79 basis points. It reversed in 2019 and the US economy entered recession the following year, albeit due to the Covid-19 epidemic. While the 30-year US bond yield rose to 3.90 percent, the country’s 5-year bond yield stood at 3.95 percent.

What does yield curve inversion mean?

While the increase in rates on long-term bonds, such as 10- and 2-year bonds, led to a move in the latter period, the reversal of the yield curve attracts attention. A graph showing the relationship between the interest rates of debt instruments and their maturities is called the yields.” Although the falling sloping yield curve indicates that the interest rate on short-term debt securities is higher than the interest rate on long-term ones, it shows that inflation is expected to decrease in the long term.The inversion of the yield curve indicates that investors expect higher short-term lending rates, while concerns about the Fed’s ability to control inflation without significantly affecting economic growth are also high. According to research, the US yield curve has preceded every recession since 1955 reversed, followed by a recession 6–24 months later. Studies have also shown that the spread between 2-year and 10-year bond yields has changed 28 times since 1900. Twenty-two of them have gone through recessions. Raising rates can be a weapon against inflation, slowing economic growth by raising borrowing costs for everything from home loans to long-term home loans. On the other hand, the Fed has raised interest rates by 375 basis points this year. per annum, while money market prices rise The Fed is forecast to raise interest rates by 50 basis points with a 75 percent chance and by 75 basis points with a 25 percent chance at its December meeting.