YC2YR US Yield Curve (2-10 Spread) Weekly Chart

No one talks about recession anymore. With the big stock market rally, all the worries and fears disappear in the rearview mirror. Virus, schmirus, Riots, schmiots, Jobs, schmobs. The only thing that matters is the Federal Reserve, and other global central banker's, nonstop money-printing schemes. When the 2's-10's inverted last summer, the talking heads say do not worry since a recession typically does not happen for 12 to 24 months after the inversion. We are about 10 months along now. Time flies when you're having fun. The 3-month to 10-year spread inverted sooner than the 2-10 spread so it is more months along.

The yield curve shakes off the inversion and runs higher over the last year. YC2YR is running up the top standard deviation band so a move back to the middle band at 0.38 (38 bips), and rising, is on the table. The 2-10 spread should also pullback to back test the 200-week MA at 0.54. YC2YR will probably chop sideways with slight lift for the next couple weeks and then begin retreating.

The steeper yield curve is making for happy banksters. The banks need that wider differential between rates to make more money on loans. The regional banks benefit more from the steeper yield curve than the large money-center banks since they are focused more on loans while the big boys have their hands in many more pies with big investment divisions. KRE jumps +3.6% yesterday and is up +10.3% this week thus far. XLF is up +8.1% this week.

The chart above shows an inverted H&S in blue. With the head at zero, at the inversion level, and the neckline at 30 bips, the target is 60 bips if the 0.30 is taken out to the upside, which it is, and the 0.60 level is attained satisfying the pattern.

It is very interesting that stocks sold off yesterday and at the same time so did notes and bonds (higher yields). Usually, stocks go down showing risk-off, so Treasuries are bid as traders seek perceived safety so note and bond prices go up sending yields lower. Conversely, stocks go up to show risk-on, so Treasuries are shunned sending prices lower and yields higher. The dough from notes and bonds moves into stocks. Another scenario is stocks moving up with Treasury yields moving lower. This is the path over the last 11 years on a broad basis with the Fed printing money maintaining low rates on the front end, keeping yields low, while stocks run higher on the massive worldwide liquidity.

The interesting scenario is what happens when confidence is lost in the Federal Reserve? The stock market floats higher now because traders and investors trust the central bankers, especially the four horseman of the global financial apocalypse, the Fed, ECB, BOJ and PBOC, and as long as that confidence and trust remains, stocks go up. When the jig is up, all Hades will break loose in markets. Stocks will likely collapse while yields move higher (both stocks and bonds are sold off). Yesterday, Thursday, 6/4/20, stocks sold off and yields ran higher. Very interesting. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 9:15 AM EST: The Jobs Report is a big upside surprise (although data remains confusing). The 10-year yield is up to 0.93%. S&P futures are up +63 points a big rally on tap. Bonds are sold off and stocks are bot.