In the Market: Economic surprises are messing with the market's favorite recession predictor

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Market Signal ข่าว

Federal Reserve,Bill Campbell

A bond market anomaly that has reliably predicted a U.S. recession in the past may normalize this year in a highly unusual manner. The market signal, called...

- A bond market anomaly that has reliably predicted a U.S. recession in the past may normalize this year in a highly unusual manner. It's a worry for markets.

"What we saw in the later stages of 2023 was the beginning of that curve normalization," said Dan Siluk, a portfolio manager at Janus Henderson. "We'll get a continuation of that theme through the back end of 2024." Harvey pointed out that the time it takes for a downturn to manifest after inversion varies, and that in the four most recent inversions the curve turned positive before a recession started.To be sure, a bull steepening could also still happen. High policy rates could still slow down the economy, weaken the labor market and hurt consumers, leading the Fed to cut rates. High interest rates could also cause a market ruction, like a banking crisis, that forces the Fed to lower rates.

An event like the UK’s debt crisis of autumn 2022 is hard to predict, although investors said they were watching for spending plans of both U.S. political parties as the November election approaches. That is leading macro hedge funds to go in and out of the trade, Campbell said. Investors are also looking at other ways, such as using smaller trade sizes.

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