Bond market fireworks highlight recession worries

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Sharp moves in the U.S. Treasury market are increasingly pointing to the risk of an approaching recession, with 'bond vigilantes coming out of the woodwork' and markets doubting the U.S. Federal Reserve's plan to engineer a 'soft landing' for the economy as it hikes interest rates to fight inflation, market experts said.

A security guard walks in front of an image of the Federal Reserve following the two-day Federal Open Market Committee policy meeting in Washington, March 16, 2016. REUTERS/Kevin LamarqueNEW YORK, March 21 - Sharp moves in the U.S. Treasury market are increasingly pointing to the risk of an approaching recession, with "bond vigilantes coming out of the woodwork" and markets doubting the U.S.

The closely followed part of the yield curve measured between 10-year and two-year Treasuries has narrowed by about 60 basis points since the start of the year, with the longer-dated notes now yielding less than 20 basis points more than two-year debt. "The market perhaps is assuming that they can't thread that needle ... it's going to be tough to not drive us into recession", she said.

When asked on Monday about concerns on what the yield curve is saying, Powell said that he focused on the short end of the curve, meaning the first 18 months of maturities. "If the past 30 years is any guide, both parts of the curve need to flatten and invert before we are at risk of recession", he said.

 

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