As the U.S. economy faces growing uncertainties, Sevens Research analysts highlighted two critical"smart market" signals that investors should monitor to gauge the likelihood of an impending recession.
According to Sevens Research, when this spread reverts from negative to positive after a prolonged inversion, it historically precedes market downturns, as seen in 2000 and 2007. The firm says this reversion process is currently in motion, making it a crucial indicator to watch. The analysts note that while the 10Y-2Y spread is nearing positive territory, the 10Y-3M spread has deepened its inversion, which suggests that a recession could still be on the horizon.A"Bull Steepening" trend, where short-term yields fall faster than long-term yields, signals economic concerns and dovish Fed policy expectations—precursors to potential rate cuts.