The US yield curve, the 2-10 spread, is inverted for 2 years the longest inversion in history. Put that in your pipe and smoke it. Typically, a recession appears within about 18 months of the inversion and we are looking at that milestone in the rearview mirror.
The first orange circle shows an inversion tease in March 2022, showing a little leg, but then quickly dis-inverted. Legs. In June and July 2022, two years ago, the inversion occurs and the 2-year yield is now higher than the 10-year yield forecasting a recession at some point forward. It is the Godot Recession. Everyone is waiting around for Godot to show up, and waiting, and waiting, ........ hey pal, we're still waiting. Where's that Godot Recession guy?
The blue hook patterns are key since they start a potential dis-inversion but you can see that every time the hook started to form, it then petered out before the spread could move back above zero and dis-invert. The parlor game continues. A recession is coming and likely extremely close since 2 years is a long time for the curve to stay inverted.
The green lines show the spread inverting further (moving down) in 2022 and the first half of 2023 but you can see the chart indicators are all positively diverged and voila, a bounce occurs off the bottom at -108 basis points. Wow. It looked like the curve was on its way to dis-invert and the recession would quickly follow but alas, the spread rolls over again after tagging -13 bips (resistance). The spread tried to dis-invert again starting at the end of last year into early this year but smack, it hit the -13 bips resistance ceiling and received a spankdown from the neggie d (red lines).
The spread staggers sideways the last few months like a drunk in Times Square last night. Note the tight squeeze of the standard deviation lines (purple arrows). Tight bands indicate that a sizable move is about to occur but they do not predict direction. It is like squeezing a tube of toothpaste; you know it is going to fly wildly out of the tube but you do not know where it will go.
The spread dis-inverted 12 bips last week to -37 bips currently. The 2-year yield is 4.75% and the 10-year yield is 4.39% so the difference is -0.36% or negative 36 bips. That is close enough for government work to the -37 bips on the chart.
The slight bump higher in the spread last week comes with the indicators giving off a sliver of possie d to help fuel the upside. Overall, however, the indicators are not tipping their hands and simply lining out sideways waiting on Pope Powell to tell everyone how to trade. The upper band at -29 bips is an upside resistance target at -28 to -29 bips. If this is taken out, the -13 bips line in the sand is the next key resistance. If this is taken out the dis-inversion will likely occur and the spread will move back above zero.
The Aroon is interesting. The red line shows that 100% of the folks expecting the spread to drop and invert deeper continue to universally expect the spread to drop again. At the same time, for those that are expecting the spread to dis-invert and move back up towards zero, nearly every one of them also believe that the spread will actually inverts further. The boat is fully loaded to the side that the inversion will deepen and continue on forever. You know that is not going to happen. Note that each bottom where the blue hook patterns would begin forming start when the red Aroon line is at 100%, like now, so that pop higher last week may be the start of a bigger move higher towards dis-inversion and recession.
The -50 bips is strong support so if that gives way the move lower to more inversion would be in play. There is a gap below at -54 bips to -65 bips that needs filled so the baby games may send her down there first to fill that gap then afterwards will be a solid move higher to dis-inversion and recession.
Simply use the -50 bips support, -28 to -29 bips resistance, and -13 bips resistance to determine the Winners and Losers going forward. Life's a gamble, and you might lose. Are you happy with all the choices that you made? Keystone does not have any trades on long or short Treasuries currently. 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, 7/2/24, at 4:39 AM EST: The 2-10 spread started to test the -28 to -29 bip resistance yesterday. That did not take long. Right now, the 2 is at 4.76% and the 10 is at 4.46% for a 2-10 spread (yield curve) at -30 bips. The drama begins.
Note Added Friday Morning, 7/12/24, at 9:36 AM EST: The 2-10 spread is up to -29 bips again testing the critical overhead resistance. The 2-year is at 4.49% and 10-year at 4.20%.
Note Added Monday Morning, 7/15/24, at 7:24 AM EST: The 2-10 spread is up to -22 bips punching up through the -28 to -29 resistance that now becomes support. The 2-year is at 4.45% and 10-year at 4.23%. The -13 bips resistance is next on tap, only 9 bips away, and that is for all the marbles because if the spread pops above -13, it will likely dis-invert completely going forward (move above zero turning positive with the 10-year yield higher than the 2-year). The hook pattern is holding and as the spread disinverts the recession will appear.
Note Added Wednesday Morning, 7/17/24, at 5:53 AM EST: The spread pulls back to back kiss the -28 to -29 bips support so it is bounce or die time. If she bounces, the -13 bips resistance is on tap and the spread is on its way to dis-inversion, and US recession. If she falls through the support, the spread will likely drop lower to -37 bips inverting further repeating the same story over the last couple years. This is a big test right now at -28 to -29 bips.
Note Added Sunday Morning, 7/21/24: The back test continues with the spread at -27 bips. The 2-year is at 4.51% and 10-year at 4.24%. It is time to bounce or die.
Note Added Wednesday Morning, 7/24/24, at 4:50 AM EST: Bounce. The 2-10 spread rises to -20 bips so the -13 bips overhead resistance is likely the next target. If that gives way, the dis-inversion will be at hand which means the US recession begins. The 2-year is at 4.44% and 10-year at 4.24%. The 2-year yield drops so traders are buying the short duration with both fists.
Note Added Wednesday Morning, 7/24/24, at 7:38 AM EST: The yield curve rises to -19 bips with the 2-year at 4.42% and 10-year at 4.23%. Dis-inversion = recession.
Note Added Wednesday Morning, 7/24/24, at 8:21 AM EST: The yield curve rises to -18 bips with the 2-year at 4.41% and 10-year at 4.23%.
Note Added Wednesday Morning, 7/24/24, at 9:01 AM EST: The yield curve rises to -18 bips with the 2-year at 4.40% and 10-year at 4.22%. The -13 bip resistance is only 5 clicks away.
Note Added Wednesday Morning, 7/24/24, at 9:55 AM EST: The yield curve rises to -17 bips with the 2-year at 4.41% and 10-year at 4.24%.
Note Added Wednesday Morning, 7/24/24, at 10:45 AM EST: The yield curve rises to -16 bips with the 2-year at 4.38% and 10-year at 4.22%. The -13 bip resistance is only 3 clicks away.
Note Added Wednesday Afternoon, 7/24/24, at 3:30 PM EST: The yield curve rises to -13 bips with the 2-year at 4.41% and 10-year at 4.28%. That was fast. It is bounce (poke up through -13 bips to head higher towards zero and dis-inversion and of course, recession) or die time (fall back away form -13 bips moving down towards the -28 bip to -29 bip support once again delaying the recession).
Note Added Wednesday Afternoon, 7/24/24, at 3:45 PM EST: The yield curve drops to -14 bips with the 2-year at 4.41% and 10-year at 4.27%.
Note Added Wednesday Afternoon, 7/24/24, at 5:05 PM EST: The yield curve drops to -15 bips with the 2-year at 4.43% and 10-year at 4.28%. The -13 bips resistance holds on the first try but the challenge remains a coin-flip; it will play out over coming days. The US stock market sh*t the bed today. The SPX mini-crashes 129 points, -2.3%, to 5427. The Dow collapses 504 points, -1.3%, to 39854 below 40K. The Nazzy mini-crashes 655 points, -3.6%, to 17342. .The stock market sell-off cascades globally. Is a worldwide recession/depression on the come?
Note Added Thursday Morning, 7/25/24, at 3:00 AM EST: The yield curve rises to -12 bips with the 2-year at 4.37% and 10-year at 4.25%. The -13 bips resistance is pierced and now getting chipped-away. Note that stocks are sold off while yields move lower (bonds and notes are bought) so some of the money from the stock market sales flows into the perceived safety of US treasuries. These are investors thinking that growth is deteriorating and may be falling off a cliff.
Note Added Thursday Morning, 7/25/24, at 4:15 AM EST: The yield curve rises to -11 bips with the 2-year at 4.34% and 10-year at 4.23%. The US recession pokes its head out of the bushes, looking each way, thinking the coast may be clear to show its ugly face. Dis-inversion (zero) is only 11 bips away.
Note Added Thursday Morning, 7/25/24, at 6:24 AM EST: The yield curve is at -13 bips with the 2-year at 4.35% and 10-year at 4.22%. The 2-10 spread sits on top of the -13 bips S/R deciding to bounce, or die. The recession hiding in the bushes is telling the spread to bounce towards dis-inversion.
Note Added Friday Morning, 7/26/24, at 4:00 AM EST: Die. The yield curve is at -17 bips, moving lower, inverting further, with the 2-year at 4.43% and 10-year at 4.26%. The short end yield jumps higher faster than the 10-year.
Note Added Friday Morning, 7/26/24, at 5:30 AM EST: The yield curve is at -19 bips with the 2-year at 4.43% and 10-year at 4.24%.
Note Added Monday Morning, 7/29/24, at 3:43 AM EST: The yield curve is at -20 bips with the 2-year at 4.37% and 10-year at 4.17%. The drama continues. The hook pattern was reversed again, for the umpteenth time, so the overall US recession remains on hold. Perhaps the next path higher in the spread back towards zero will be the hook pattern that actually plays out higher and brings on the recession?
Note Added Tuesday, 7/30/24, at 1:45 AM EST: The yield curve is at -20 bips with the 2-year at 4.35% and 10-year at 4.15%. The beat goes on.
Note Added Wednesday, 7/31/24, at 7:14 AM EST: The yield curve is at -22 bips with the 2-year at 4.35% and 10-year at 4.13%. The Fed rate decision and Powell presser is on tap today starting in about 7 hours. The 10-year yield is back down to early March levels.
Note Added Thursday, 8/1/24, at 4:10 AM EST: The yield curve is at -24 bips with the 2-year at 4.29% and 10-year down to 4.05%.
Note Added Thursday, 8/1/24, at 8:18 AM EST: The 2-10 spread is at -22 bips with the 2-year at 4.28% and 10-year at 4.06%.
Note Added Thursday, 8/1/24, at 10:50 AM EST: The 2-10 spread is at -21 bips with the 2-year at 4.18% and 10-year at 3.97%. The 10-year drops below 4%. People are seeking perceived safety driving yields lower. The stock market is selling off in force.
Note Added Thursday, 8/1/24, at 3:55 PM EST: The 2-10 spread is at -17 bips with the 2-year at 4.16% and 10-year at 3.99%. The rise higher to retest the -13 bips resistance is likely on tap and the yield curve is stronger as it heads up a second time. Perhaps the hook pattern will finally have a chance to play out with the spread up through -13 bips and then back to zero which will signal that the US recession is at hand. 13's my lucky number, to you it means stay inside, black cat done crossed my path, no reason to run and hide.
Note Added Friday Morning, 8/2/24, at 3:45 AM EST: The 2-10 spread is at -19 bips with the 2-year at 4.14% and 10-year at 3.95%. The yield curve rose to -16 bips and now slumps back to -19 bips with the US Monthly Jobs Report dropping in less than 5 hours.
Note Added Friday Morning, 8/2/24, at 8:33 AM EST: The US Monthly Jobs Report lays an egg reporting only 114K jobs and downward revisions. Last month drops to 179K from 206K jobs. The unemployment rate jumps to 4.3% so that will maintain Keystone's labor recession indicator and the Sahm Rule will finally be triggered. Gee, thanks a lot after the stock market is already tumbling, notes and bonds are going to the moon (higher prices, lower yields), and it looks like the Fed has waited too long to cut, the Sahm Rule now hints at danger ahead. Danger Will Robinson! Danger! Growth scare..... Policy Error .... Danger Will Robinson..... Growth Scare ..... Policy Error .... Wages disappoint like the rest of the data with only a +0.2% increase on month and the annual wages are down to 3.6% missing the 3.7% estimate and below last month's 3.9% revised down to 3.8%. The jobs data is a turd. Wow. The 2-year yield plummets to 3.86% and 10-year yield collapses to 3.80% for a spread of only -6 bips. The yield curve is dis-inverting signaling that the US recession is likely on hand. Let's see if the 2-10 spread will move above zero for a full dis-inversion (10-year yield higher than 2-year yield). S&P futures drop to -96 points or -1.8%. The Nazzy is down -2.5% and the RUT small caps are down -4%. It is a bed-sh*tting. Europe loses hope after the US jobs report with the major indexes across the pond tanking -2%. Italy's MIB collapses -2.5%. There were nothing but bulls remaining in the US stock market; the bears had all given up hope. Now the bulls are running around in a panic trying to sell shares to each other as prices fall like rocks. It's fun.
Note Added Friday Morning, 8/2/24, at 9:38 AM EST: The 2-10 spread is at -11 bips with the 2-year at 3.96%, now under 4%, and 10-year at 3.85%. The -13 bips resistance gives way and now becomes support. A back kiss to -13 would be in order and then a bounce higher towards zero, to prove that up is the path forward; up and marching into recession.
Note Added Friday Morning, 8/2/24, at 10:03 AM EST: The 2-10 spread is at -12 bips with the 2-year at 3.96% and 10-year at 3.84%.
Note Added Friday Morning, 8/2/24, at 11:36 AM EST: The 2-10 spread is at -7 bips with the 2-year at 3.89% and 10-year at 3.82%.
Note Added Friday Afternoon, 8/2/24, at 5:09 PM EST: The 2-10 spread is at -9 bips with the 2-year at 3.88% and 10-year at 3.79%. The smoke needs to clear in the markets over the weekend; it was quite a week..
Note Added Sunday Evening, 8/4/24: The cascading global stock market selloff, quickly becoming a crash, continues rotating around the world. The US yield curve (2-10 spread) is up to -4 bips a hair from dis-inversion, and recession. The 2-year yield is 3.76% and 10-year yield 3.72%.
Note Added Monday Morning, 8/5/24, at 3:30 AM EST: The US yield curve (2-10 spread) is at -4 bips a hair from dis-inversion, and recession. The 2-year yield is 3.79% and 10-year yield 3.75%.
Note Added Monday Morning, 8/5/24, at 4:40 AM EST: Traders now estimate a 60% chance that the Federal Reserve will cut 25 bips within the next week. Oh my. That is panic. If the Fed would do that, it would create panic that the economy is far worse than thought, however, investors are already panicking running around with their hair on fire during the global stock market rout since Thursday. The US yield curve (2-10 spread) is at -4 bips a hair from dis-inversion, and recession. The 2-year yield is 3.81% and 10-year yield 3.77%.
Note Added Monday Morning, 8/5/24, at 7:03 AM EST: The US yield curve (2-10 spread) is at -1 bip almost dis-inverted (bull steepener) and probably, finally, signaling recession. The 2-year yield is 3.7581% and 10-year yield 3.7435%. The S&P futures are down -148 points, -2.8%. VIX is 50+.
Note Added Monday Morning, 8/5/24, at 7:33 AM EST: The 2-year and 10-year yields sit at 3.73% remaining only one tiny hair inverted. The S&P futures plummet -163 points, -3%, to the lows of the session. VIX 50.68. NVDA pukes -13%. MSFT collapses -7%. Bitcoin is at 50,947.
Note Added Monday Morning, 8/5/24, at 8:42 AM EST: The 2-year is at 3.6559% and 10-year yield is at 3.6672%. Sound the Seven Trumpets!! THE US YIELD CURVE DIS-INVERTS FOR THE FIRST TIME IN OVER 2 YEARS. Normalcy returns with the 10-year yield a single hair above the 2-year yield.
Note Added Monday Evening, 8/5/24, at 6:02 PM EST: If you blinked during the dis-inversion of the yield curve, you missed it. The yield curve re-inverted quickly this morning with the spread widening again. The 2-10 spread then dropped from the slightly positive number back down to the -0.13% support. The 2-year yield is at 3.92% and the 10-year yield is at 3.79%. The zero level and dis-inversion is obviously a big deal so it would be expected for yield to stab at the zero resistance once or three times before thrusting up through. The spread likely re-inverted as traders believe that a 50-bip cut is likely not coming. The hook pattern is continually spanked back down delaying the recession.
Note Added Tuesday Morning, 8/6/24, at 4:32 AM EST: The 2-year yield is at 3.97% and the 10-year yield is at 3.85%. The spread is at -0.12 bips. The back kiss is successful so far; the -0.13% support is holding.
Note Added Tuesday Afternoon, 8/6/24, at 4:15 PM EST: The 2-year yield is at 3.98% and the 10-year yield is at 3.90%. The spread floats higher to -8 bips. The back kiss is successful so far; the -13 bip support is holding.
Note Added Wednesday Morning, 8/7/24, at 4:32 AM EST: The 2-year yield is at 4.00% and the 10-year yield is at 3.91%. The spread is at -9 bips. The -0.13% support is holding. The spread has been at -9bips, with that brief increase to -8 bips, for the last half-day as the yields fluctuate up and down. The BOJ steps in verbally to weaken the yen and create lift in US stocks.
Note Added Wednesday Morning, 8/7/24, at 9:09 AM EST: The 2-year yield is at 3.99% and the 10-year yield is at 3.93%. The spread is at -6 bips.
Note Added Wednesday Evening, 8/7/24, at 8:33 PM EST: The 2-year yield is at 3.96% and the 10-year yield is at 3.94%. The spread is at -2 bips. Only 2 measly bips from complete dis-inversion, and recession.
Note Added Thursday Morning, 8/8/24, at 8:50 AM EST: The 2-year yield is at 4.04% and the 10-year yield is at 3.99% after the US Jobless Claims happy data. The spread is at -5 bips.
Note Added Friday Morning, 8/9/24, at 3:18 AM EST: The 2-year yield is at 4.02% and the 10-year yield is at 3.96%. The spread is at -6 bips.
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