Source: Bloomberg
Author: Liz Capo McCormick, Michael Mackenzie, Ye Xie
If you pay attention to the top economist of Wall Street, you will find that they repeatedly repeated the same information, that is, the risk of the US economic recession is falling rapidly.However, in the bond market, the traditional warnings (inverted yield curves) about the upcoming period of the downturn period are increasingly bright.
Ed Yardeni, an economist who has been paying attention to this market since the 1970s, explained this.
He believes that the yield curve reflects the slowdown of inflation. Generally speaking, economic recession will accompany the slowdown of inflation, but it does not mean that the recession will really happen.Yardeni refers to the "bliss realm" that does not have declined, that is, no need to experience any pain (the unemployment rate has risen significantly or the stock market has been impacted) can gain a lot of harvest (consumers no longer suffer from soaring prices).In the U.S. Treasury market, when traders expect the Federal Reserve to cut interest rates next year, the short -term return rate will rise and long -term yields will fall.
"It is conceivable that the yield curve wants to express the success of the Federal Reserve," Yardeni, the person in charge of Yardeni Research, said in an interview."Facts have proved that the economy has shown significant toughness, and the Fed may not need to increase interest rates."
This year, it will definitely raise interest rates at least once.Traders and economists agree that the Fed Chairman Powell will announce a rate hike of 25 base points after ending the interest rate meeting on Wednesday, which will be the 11th rate hike since the beginning of last year.
"Early time"
For those who are still dedicated to the inverted tradition of yield curve, the scale of this interest rate hike cycle cannot be ignored.They believe that with banks' loans to companies and consumers, economic pain will begin to intensify.As early as the 1980s, Campbell Harvey, a professor of Duke University, who was determined by the inverted curve, may be the most influential person in it.
"It is said that the incorrect signal is too early to say that the incorrect signal of the yield curve is too early," Harvey said in an interview."The biggest problem is not whether the economic recession is coming, but how serious the decline will be. I really worry that if the Federal Reserve raises interest rates twice, it is equivalent to poured too much gasoline on firewood, and it will push us to a very bad one.Direction. "
So far, the economy has shown surprising toughness.Even if employment growth slows down, consumers are strong, and the labor market is still strong.At the same time, the annual increase of consumer price index (CPI) without food and energy in June was 4.8 %, which was the minimum increase since 2021.
The interpretation of the "Bliss Realm" is becoming increasingly mainstream.
Meghan Swiber, a Bank of America strategist, holds such a view. He said that "the shape of the curve is more due to the expected inflation decline, not because of the deterioration of economic growth."Goldman Sachs Economist urges investors not to care about the return of yield curves, because it reflects more long -term market trends.Recently, the sharp rise in the stock market also shows that investors have also concluded the same.
The banking crisis
After the Fed started interest rate hikes, the two -year to 10 -year yield curve occurred for the first time in 2022.By March, with the appearance of banks' closure, the curve inversion has reached the most extreme level since the early 1980s.But later, even if the banking industry stabilized, the market anxiety faded, and the 10 -year yield was still stable below the 2 -year yield.
In the past two weeks, although economic data is stronger than expected, the difference between the two -year and 10 -year yield has reached a percentage point, which has forced the peak level in recent years.Other parts of the yield curve are also deeply inverted, including the difference between 3 months and 10 -year yields, which is the focus of Harvey's research.
One of the reasons for this strange phenomenon is that in general, the interest rate has risen so high, so that the long -term yield indicates that the Fed will eventually slow down the interest rateStimulate economic growth.
Yardeni said that after the closure of Silicon Valley Bank, the Fed quickly took action to boost confidence in regional banks. These measures may have avoided credit tightening that usually occur after the curve inverted.
He said, "So far, we have not had a credit crisis in the entire economic field, and there is no economic recession."
