Quote:
Originally Posted by Yoho
Rarely has an inverted yield in the bond market been wrong about an upcoming recession.
|
While that's true, I'd argue that the current bond/treasury yields are less market influenced than in the past. In the US at least, the Federal Reserve is deliberately keeping short-term yields high by borrowing trillions of dollars from money market funds and banks at ~5% interest. Effectively, they're paying investors in order to shrink the treasury market; the idea being that if that money flowed into treasuries, short-term yields would be forced downwards which would undermine the effects of their rate hikes.
So essentially, in the current situation the central banks are intentionally trying to invert the yield to achieve their policy goals, whereas yield inversions in the past were more driven by market sentiment. Presumably the latter would be far more predictive of a recession than the former.