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By Last Updated: November 23, 2023
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Contrary to widespread expectations of rising interest rates due to burgeoning government debt and supply, the 10-year Treasury yield has taken a surprising turn, dropping below 4.4%. This move defies the narrative of an uncontrolled spike in yields reminiscent of the 1970s and challenges the consensus that the bond market would be inundated with Treasury issuances.

Early today, yields on the benchmark 10-year note ticked up slightly after hitting a two-month low of 4.369%, its lowest level since September 20th. However, the more notable movement was seen in the 2-year note yield, which rose to 4.932%, further inverting the yield curve—a classic harbinger of economic downturns.

The growing inversion contradicts the once prevalent ‘bear steepener’ narrative, suggesting that instead of a burgeoning appetite for risk, the market may be signaling a retreat to safety amid recession concerns. This shift comes as major financial and tech industry players like Jamie Dimon and Jeff Bezos have made significant sales of their companies’ shares, indicating a lack of confidence in the near-term economic landscape.

Jack Ma, the founder of Alibaba, has also joined the trend, with plans to sell a substantial portion of his holdings in the e-commerce giant. His change of heart in the face of declining share prices further underscores the uncertainty looming over the global economy.

These individual moves mirror the sentiments expressed by the bond market, where the steepening of the yield curve has ceased, now giving way to a more pronounced inversion. This not only raises questions about the health of the economy but also about the Federal Reserve’s ability to engineer a soft landing through monetary policy.

Economists and market veterans like David Rosenberg caution against premature celebrations of a soft landing, suggesting that they often precede recessions. The current economic landscape, coupled with the yield curve’s messages, indicates a strong likelihood of a hard landing in the upcoming year.

In conclusion, while inflation has shown signs of easing, the bond market’s behavior, alongside strategic moves by industry leaders, is painting a more cautious picture. As the yield curve inverts further, the probability of a recession looms larger, challenging the optimistic narratives of a resilient economy.

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