“Is this move in the bond market (yields higher), a signal to the stock market that the Fed might return to it’s game of a year ago, where it put a strangle hold on the economy (and consumer confidence)?
If so, yields would be going the other way (lower).
The bond market would be pricing in an even deeper and uglier recession, in the form of an even steeper inversion of the yield curve (an historic predictor of recession).
That’s not happening. The yield curve (2s/10s) is little changed from the beginning of the month.
What is happening? Contrary to the consensus view that recession is looming, we’re seeing no signs that the economy is faltering (quite the opposite).“
Fast forward a little more than a week, and the inflation data has continued to show a bounce back. And the 10-year yield has continued to rise, now above 4%, the highest levels since early November.
Again, looking back at my note from last week (Feb 21), we should expect the 10-year yield to be going the other way (lower), IF indeed the big, bad recession were looming.
With that in mind, I ended my note last week with this: “Perhaps the bond market is beginning to price OUT recession (and a flattening of the yield curve).“
What happened today? A flattening of the yield curve, by nearly 6 basis points (2s/10s).
Stocks went up.