YC2YR 2-10 Yield Curve Spread Daily Chart; Positive Divergence; Hook Pattern Higher Brings on US Recession; 2-10 Spread Drops to -100 Bips

The 2-10 yield spread has been of great interest over the last month as the previous posts here and here explain. When the blue hook pattern catches hold and sends the 2-10 spread back to the zero inversion line, that is what brings on the US recession.

The big news that the yield curve inverted occurs in April and it was no April Fool's Day joke. That was almost a year ago. The 2-10 spread is the go-to measure of the yield curve but the spread can be assessed across any durations from 3-month to 30-year yields. Last August, the first real hook pattern forms. Oh no, here comes the recession as the hook plays out and the spread heads higher to the zero line but alas, in September, the spread collapses lower as the yield curve further inverts (2-year yield climbing higher faster than the 10-year yield).

There are some other tries of sending the spread higher (less negative) but they all fail, too. December was the start of a big run higher to usher in the recession but alas, the spread collapses, again. A week of so ago, the 2-10 spread drops to -90 basis points (negative 90 bips). 

All this talk of dropping makes one think of Sports Team and their latest coolio rock and roll tune, The Drop. The monkey's in the ties will have to decide. Kiss the ring and watch the jackals sing.

Anyhoo, as long as the 2-10 spread lingers in the lower range, the recession continues partying with Godot (it will not arrive). So the spread heads higher up to -0.78, only to drop again down to the current -0.89 intraday printing -0.91. This action is the double bottom at the lower right of the chart. You may need a magnifying glass to see that spaghetti.

Thus, the 2-10 spread came down to -90 bips, bounced to -78 bips, and has now fallen back to -91 bips parking at -0.89 bips for the weekend (the chart is EOD numbers (end-of-day)). Note that all the chart indicators are in positive divergence (green lines) as the spread came down for the matching, and lower, low. The spread is loaded up with upside fuel and ready to launch higher.

The bad new is that as it launches higher from the possie d and oversold conditions, that will finally usher-in the US recession going forward. The spread never touched the middle band on the last rise so that -0.81 is firmly on the table as the first stop higher. Then the upper band and 50-day MA at -70 and -71 bips would be the next target higher. A move up through the prior bump at -78 bips and the -81 bips middle band would be a big deal portending far less negative numbers (higher) ahead.

So the daily basis above says the bottom is in for the 2-10 yield spread. Bring up the weekly chart. Wow. Also, all possie d. The bottom standard deviation band on the weekly is -0.96 so that has to be on the table perhaps hinting that in the coming days there may be choppiness as the Fed talking heads spew their dribble.

But make no mistake. The 2-10 spread has bottomed both on the weekly and daily basis. There may be some sideways chop for a week or two but the low numbers are in as per the daily chart.

The monthly chart is also showing possie d with the indicators except for the MACD line that remains weak and bleak. That means after the yield spread moves higher for a few weeks it will roll back over again and likely make one more move lower a couple months out, in late April or May, maybe down to current levels maybe not, and then it is all up after that on a long-term basis shedding the inverted status.

However, March has just started and 4 weeks have to play out for the monthly chart. Thus, the MACD may be possie d by the end of the month on the monthly chart and this would dictate that the long-term bottom for the 2-10 spread is occurring right now, in real-time. The MACD line on the monthly is already way down in the cellar and has no where to go but up (which will likely form possie d this month). This means the recession is coming and likely far closer than anyone realizes. 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 Tuesday Morning, 3/7/23, at 8:32 AM EST: The 2-year yield hovers around 4.86%-4.87% and the 10-year is at 3.94% for a 2-10 spread at 92-93 basis points. Let's take a look at the charts since a new week is underway. The daily and weekly charts are possie d as explained above so these spread levels should serve as a base. Pope Powell speaks shortly and of course he can change the picture immediately if he coughs and it sounds like he said something. The spread will/should move up due to the possie d and this is accomplished by the 10-yeary yield moving higher and the 2-year lower, or the 2-year anchored and the 10-year rising, or the 10-year anchored and the 2-year dropping, or both dropping but the 2-year falling faster, you get the idea. A multi-week uptrend in the spread is about to begin. The move higher in the spread going forward will usher-in the US recession.

Note Added Tuesday Morning, 3/7/23, at 10:01 AM EST: Boom. Pope Powell lays an egg flapping hawkish wings expecting more rate hikes ahead. The 2-year leaps to 4.96% a year-to-date high. The 10-year yield is at 3.98% for a 2-10 spread dropping to -98 bips now tagging the lower standard deviation band on the weekly chart. A little time may be needed for charts to adjust but no change in the analysis is expected (indicators will likely remain positively diverged).

Note Added Tuesday Morning, 3/7/23, at 11:07 AM EST: The 2-10 spread drops to -100 bips (-1 percentage point).

Note Added Tuesday Evening, 3/7/23, at 7:08 PM EST: The 2-year yield explodes higher above 5% to 5.03%. Wow! The 10-year nudges higher to 3.98%. The 2-10 spread drops like a rock to -105 basis points! A historic day. Pope Powell lays an egg shooting the 2-year yield to the moon. Give the chart a couple days to reset if necessary.

Note Added Wednesday Morning, 3/8/23, at 9:00 AM EST:  It is pandemonium. The 2-year yield catapults higher to 5.05% and 10-year yield at 3.96%. The 2-year yield popped to 5.08% and the 2-10 SPREAD DROPS BELOW -110 BASIS POINTS. WOW. This level of yield curve inversion not seen in decades! Look for a new hook pattern higher going forward which will usher-in a recession. This extreme level of negativity in the yield curve occurred in the 1929 crash, 1973 recessionary turmoil and in the late 70's when Fed Chairman Volcker stepped-in to quash inflation.