Daily Market Color

2s10s Inverts For First Time Since September 2019

The spread between 2-year and 10-year Treasury yields briefly turned negative today. The spread between the two rates is often cited as a leading indicator of recession, historically falling below 0% ~18 months prior to an economic contraction. While the traditional warning signs of a slowing economy are not yet flashing, the flatness of the curve illustrates the market’s skepticism around the Fed’s ability to quickly choke off inflation without leading to an economic contraction. The 2s10s spread would close the day above 0% at 0.03% with 10-year Treasury yields ultimately declining 6bps to 2.39%.

Job openings declined from 11.28 million to 11.26 million last month. February openings came in higher than the 11 million estimate and remain well above the pre-pandemic average of 7 million. The finance and insurance sector experienced the biggest decline at 63k, while openings in the entertainment, arts, and recreation sector saw the biggest increase at 32k.

Philly Fed President Harker is not taking a 50 basis point rate hike “off the table.” While he believes controlling inflation levels is the Fed’s number one priority, he is currently penciling in only a 25 basis point hike in May, as he fears tightening policy too quickly could “stomp the brakes hard and have growth end.” Commenting on the yield curve inversion, he cautioned that while the economy could experience “below-trend growth” in the near future, the US may be able to avoid a recession.

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