A key part of the US bond yield curve inverted again on Friday, stoking fears that a recession could be looming as the Federal Reserve steps up a plan to hike interest rates.
The two-year US Treasury note yield briefly rose above the benchmark 10-year note yield for the first time since September 2019 — an unusual “inversion” that is viewed by many as a reliable signal that a recession is likely to follow in one to two years.
The 10-year note was up 9 basis points at 2.41% while the rate on the 2-year US government bond soared 14 basis points higher to 2.42%.
Nevertheless, analysts were circumspect on whether the topsy-turvy interest rate curve necessarily spells doom for the US economy.
Ellis Phifer, an analyst at Raymond James, told Reuters: “While I think the ultimate result of an aggressive Fed tightening cycle is a recession, I do not expect it to occur quickly.”
“Historically speaking, all recessions are preceded by 2s10s inversions, but not all inversions result in recessions,” Phifer added.
US employers extended a streak of robust hiring in March, adding 431,000 jobs in a sign of the economy’s resilience in the face of a still-destructive pandemic and the highest inflation in 40 years.
The Labor Department’s report Friday showed that last month’s job growth helped shrink the unemployment rate to 3.6 percent, the lowest level since the pandemic erupted two years ago.
“The yield curve thing is front and center, that’s all I get questions about,” Jack Janasiewicz, the lead portfolio strategist at Boston-based Natixis Investment Managers, told Reuters.
“My response to this is somewhat tongue in cheek, but if there was one indicator that really told us the direction of the economy and hence the direction of the equity markets, I probably would be retired on a beach sipping pina coladas.”
Janasiewicz added: “Bottom line, it’s not that simple. All of them (yield curves) tell you something a little bit different,” noting that “quantitative easing may have suppressed the 10-year-and-out part of the curve.”
Carl Icahn, the billionaire investor and corporate raider, said last week that the American economy could be in for a “recession or even worse” as policymakers struggle to bring rapid inflation under control.
“I have kept everything hedged for the last few years,” the founder and chairman of Icahn Enterprises told CNBC.
“We have a strong hedge on against the long positions and we try to be activists to get that edge … I am negative, as you can hear. Short-term, I don’t even predict.”
Despite the inflation surge, persistent supply bottlenecks, the damaging effects of COVID-19 and now a war in Europe, employers have added at least 400,000 jobs for 11 straight months.
In its report Friday, the government also sharply revised up its estimate of hiring in January and February by a combined 95,000 jobs.
The Dow Jones Industrial Average was trading up more than 100 points at the opening bell on Friday.
With Post wires