Recession Still Top of Mind, but Some Fears Abate

Rates soar as recession fears continue to subside. Swap rates rose 7-12bps across a steepening curve today, continuing the trend from the latter half of yesterday’s session. Initially fueled by yesterday’s stronger than expected service sector data, panic regarding an imminent recession has calmed. The 2y Treasury yield briefly surpassed 4% before closing at 3.99%, a significant turnaround after it dropped as low as 3.65% yesterday morning. Meanwhile, equities bounced back to reverse some of their recent losses, with the SPX and NASDAQ both rising just over 1.00%.

Market volatility spikes. Bond and equity market volatility hit near-term highs in the past few days, fueled largely by U.S. recession fears, not helped by the looming specter of escalating international conflict and U.S. political risks. After remaining between ~12-19 for most of 2024, the VIX volatility index skyrocketed to ~38.57 yesterday, its highest level since late February 2020. Similarly, the MOVE index climbed to a recent high of ~121 yesterday, within the 85th percentile of its daily closing levels over the past year. Though recession fears calmed a bit today, global strategists at Brown Brothers Harriman “expect heightened volatility across all markets as fear dominates.”