Stocks are rallying. The bond market is flashing a recession warning. How one expert explains the conundrum.

Markets are easier to understand when two of the world’s most liquid asset marketplaces are telling the same story about the economy.On the one hand, there’s the bond market, where the 2-year BX:TMUBMUSD02Y yield briefly was above the 10-year BX:TMUBMUSD10Y yield, and where other parts of the curve have been... Markets are easier to understand when two of the world’s most liquid asset marketplaces are telling the same story about the economy.

“The ‘recession is coming’ pundits argue that CPI inflation exceeding wage inflation will dampen consumer demand and rapidly reduce real GDP. This seems to be what the yield curve is contemplating,” says Bassman, who created the MOVE index measuring interest rate volatility during a storied career at Merrill Lynch.

The one market Bassman says is acting rationally is that for mortgage-backed securities, where the spreads between MBS and Treasurys are widening above their average. He says MBS are a better buy than a sell, which is why mortgage REITs have bounced off their recent lows. The economics calendar includes the ADP employment report for March, the third estimate of fourth-quarter GDP, and speeches from two regional Fed presidents.

Furniture retailer RH RH announced a 3-for-1 stock split but warned that it is experienced softening demand after Russia’s invasion of Ukraine.

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