Entire Yield Curve Inverts, 30-Year Long Bond Yield Dives to Record Low

-edited

The stock markets are getting clobbered and bonds are on fire as recession fears escalate.

30-Year Bond Yield Smashes Through Record Low

The 30-year long bond yield crashed to 2.024% this morning and is now just a tad higher.

The previous record low 30-year long bond yield of 2.10% was on July 8, 2016 shortly after the UK voted for Brexit (June 23, 2016).

Long Bond Yield Down 51 Basis Points Since July 31

On July 31, Fed Chair Jerome Powell made a speech he is going to regret. After the FOMC decision Powell called the rate cut a "Mid-Cycle" Adjustment.

I mocked the call then and did so again on August 6 when St. Louis Fed President James Bullard, a dove, Pimped the "Mid-Cycle Adjustment" Thesis.

Amusingly, Bullard professed "The 10-year yield remains above the two-year yield, likely because markets are anticipating future policy moves by the FOMC, and so we are not seeing an intensification of the yield curve inversion so far."

Earlier today, ZeroHedge commented that the 2s10s Spread inverted, but if so, it was fleeting. I think there is too much emphasis on that spread given the 30-Year to FF spread is now inverted and the 5-year FF spread is 63 basis points inverted.

Recession Fears

Recession fears have surfaced again.

As of 12:20 PM, S&P futures are down 86 points (3.0%), the Nasdaq is down 236 points (3.0%), and the Dow is down 721 points (2.7%).

One Day Wonder

Yesterday, Trump delayed Tariffs and the stock market went on a huge rally.

In Trump Chickens Out, Delays Trade War Tariffs to Save Holiday Season I commented:

Stock Market Reaction

The Dow is up 400 points (1.6%) with the S&P 500 up 50 points (1.8%) and Nasdaq up 47 points (2.2%).

Bond Market Reaction

The bond market reaction is interesting. The 5-year yield is up 7 basis points.

The 10-year yield is up 4 basis points and the 30-year long bond is up a just 1 basis point, a mere 4 basis points from a new record low yield.

Trust the long bond.

Long Bond Screaming Recession

That one-day wonder was even faster than I expected.

Here's the message: Recession.

Meanwhile, note that a Global Manufacturing Recession has started and Trump's tariff policy made matters much worse.

Note that the normal Lead Time Between Manufacturing Recessions and Full Recessions is zero quarters.

A recession may have started already.

Mike "Mish" Shedlock

Comments (37)
No. 1-16
Tony Bennett
Tony Bennett

My tell for when things about to get VERY interesting - Larry Kudlow throwing in the towel.

Brother
Brother

There is no recession. This is being played by the Anti Trump agenda and the money manipulators that is causing high volatility and will continue.

Irondoor
Irondoor

Dow down 600. Time for a Tweet. Wonder what it will be this time? I'm beginning to realize that the "Trump Put and the Fed Put" may be out of belief until after Sept.

thimk
thimk

just heard Rush L state on daily talk show that recessions could be a self fulfilling prophecy.

Lost_Anchor
Lost_Anchor

Yield curve inversion doesn't mean anything when its caused by the Fed manipulating longer maturities.

Lots of people warned dim-wit Bernanke that his banana republic policies would cause price discovery problems and eventually shut down the Treasury market. But Bernanke is an idiot "professor" who would spout endless equations that proved he didn't know what he was doing.

Japan saw its JGB market collapse in the wake of QE/ZIRP -- even though BoJ called it something else. Bernanke did the same stupid policy as the BoJ -- the Fed lost control of both the Treasury market AND the money supply, and just as in Japan banks are going to pay big time.

That is what a failed Treasury market looks like. Its a disaster for big banks.

Mish is a general fighting the last war, constantly parroting what the yield curve would be telling us IF it was still market priced. It isn't

Casual_Observer
Casual_Observer

I posted Monday that John Mauldin had a post on LinkedIn of a Morgan Stanley chart showing the QE-ajdusted yield curve actually went inverted in December and has remained so since. I've been skeptical of the yield curve this cycle more than previous cycles. To me if you see layoffs and unemployment spike higher soon, then you will know corporations feel there is an economic slowdown. Mass layoffs always happen quickly when the economy is in recession.

Bam_Man
Bam_Man

You only see this kind of crazy day-to-day volatility in Bear Markets.

LB412
LB412

"Yesterday, Trump delayed Tariffs and the stock market went on a huge rally."

He still plans to implement a 10% tariff on $100B worth of imports on 9/1. I'd call that a partial "chicken out" but still very negative for the consumer. Look at the list Most apparel is still included as are many other key items.

Casual_Observer
Casual_Observer

David Rosenberg @EconguyRosie Definition of a low quality GDP report was front and center with the release of today's NY Fed credit report -- over 80% of the household spending gain was financed by debt.

Ted R
Ted R

The recession of 2008-2009 never really ended. It just depends on what formula one wants to use to calculate economic activity/data. The American economy has been contracting and deflating for years now. What is so scary is the Federal Reserve is now out of ammunition. It has no more cards to play to prevent wholesale deflation. Deflation has officially arrived and it will here for many years to come. I bailed out of the stock market last year. Happy I did.

Tony Bennett
Tony Bennett

2yr and 10 yr @ parity (atm)

If someone could cough we might get an inversion.

Lost_Anchor
Lost_Anchor

@Ted R "What is so scary is the Federal Reserve is now out of ammunition"

What is really scary is that the greatest economy in the world became completely dependent on central planners and government meddling

shamrock
shamrock

There hasn't been much movement, if any, in mortgage rates.

Lost_Anchor
Lost_Anchor

Looks like the generals fighting the last war have worked themselves into a total frenzy over the Fed's yield curve manipulation.

Powell made a HUGE mistake placating Trump on short term rates. He should have told Trump to focus on draining the swamp and let the financial system finish normalizing.

Zombie companies would die, but they will anyway. Tighter Treasury rates would constrain Congressional spending, the swamp would have less bribe money to spread around. Main Street would have been better off for it.

But Powell committed an unforced error. Far from the first the Fed has committed. Time for US citizens to end our dependence on central planners before the central planners "Argentina" the whole US economy.

bradw2k
bradw2k

If the 30Y yield drops below the 1M yield, does everyone get a taco?

SteveVT
SteveVT

Recession? How about a big bubble pop deflationary depression? I am about to refinance at a much lower interest rate. Nuts is I bought it about a year ago. Bubble.