While bond yields are pretty much all over the place these days, a clear pattern is starting to emerge. And that is the US Treasury yield curve having finally becoming inverted in a key segment.

At pixel time the 2y10y spread was at minus 5bps. There is nothing unusual about what drove the yield curve to inversion. It’s the intensifying doom and gloom, which has resulted in this horrible year for equities and credit and now commodities too. All this stuff is pretty much in a bear market. Furthermore, business cycle surveys such as the PMIs while gloomish, have only softened modestly so far, relatively speaking. Neither Eurozone nor US PMIs suggest an economic contraction was/is at hand in the late spring/early summer. Our takeaway is that the economic data has yet to turn south. And when the data turns south over the course of the second half of the year, it will probably result in further losses for equities, credit and commodities when one condition is met. The Fed keeps up this hard-nosed attitude and puts inflation above all else. If that’s the case, the aforementioned inversion will only intensify.


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