U.S. yield curve flashing more warning signs of recession risks ahead

September 12, 2022

U.S. yield curve flashing more warning signs of recession risks ahead A Specialist Trader works inside his post on the floor of the NYSE in New YorkBy Davide BarbusciaNEW YORK (Reuters) -The U.S. government bond market is sending a fresh batch of signals that investors are increasingly convinced the Federal Reserve's aggressive actions to tame inflation will result in recession. Powell, however, has in recent months said that the short-end of the yield curve was a more reliable warning of an upcoming recession. "The first 18 months of the yield curve has 100% of the explanatory power of the yield curve, and it makes sense ... because if it's inverted that means the Fed is going to cut which means the economy is weak", he said in March. That spread has not gone negative, though it has narrowed significantly from over 250 basis points in March to about 70 basis points this week, said MUFG's Goncalves. "It is likely recession probabilities rise further in the coming months if policy rate hikes cause further curve inversion and cyclical data continue to deteriorate," they added.