Goldman says bond market is looking at wrong recession indicator
That scary bond market warning about a recession might not be the right thing to be watching after all.
The Goldman strategists, however, point out that it is unusual for that part of the curve to invert first, while the more commonly watched spread is between the 10-year and 2-year note and that usually inverts sooner. That is because it is where the market prices anticipated interest rates moves by the Fed. The Fed, on the other hand, favors watching the 3-month spread.
"This dynamic has probably been supported by international spillovers from non-US rates where QE and low growth and inflation expectations have supported lower 10y rates. As a result, the curve inversion signal could be less powerful for recessions than in the past since long dated yields across regions have become more correlated," they wrote.Another important factor to note is that credit spreads did not increase in a material way last week.
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