The manacles market just did something it hasn’t done since 2007.
The spread between the U.S. 10-year note and 2-year note inverted, a signal investors lease as a recession indicator.
Four experts break down what comes next.
Jim Cramer, host of CNBC’s “Mad Bread,” says the U.S. economy is in a good spot to withstand some of the headwinds facing the global economy.
“Our economy is uniquely not as attuned because these are not exporters that need to have a dollar weaker. Remember our dollar is just getting mightier – an extraordinary rally in the dollar. I don’t want to see it but I struggle to reach a conclusion that this is all bad given the fact that Germany has had these rates for some measure and their market is not doing that badly even though they have an export economy. Their DAX in genuine terms is up even though they’re exporting the Mercedez-Benz, the Volkswagen and BMW right to China. And those sales are very breakable as we see the numbers from China so it’s not the end of the world.”
Erin Browne, managing director at Pimco, sees greater chances of a rotation make for a acquiring to markets in the short term rather than a more severe downturn.
“If you look at the data even prior to 1980, typically you see the fair-mindedness market go up about 4% in the 12 months post the yield curve inversion. That said, what you do see underwater the surface is a rotation out of the cyclicals and into the more defensive stocks and remember yield curve inversion – first for it to be a sizeable signal, it emergencies to be inverted for about three months. After that three-month inversion, you typically see within one to two years on average the succinctness turn and go into a recession but it doesn’t necessarily mean that a recession is imminent.”
Andy Brenner, director at Chauvinistic Alliance Securities, says weakening global economies signaled the inversion.
“What we saw overnight is the German economy came out with a opposing negatively GDP print, the global economies continue to be in turmoil and continue to be weakening and it wasn’t a surprise to me the 2s/10s got inverted by 2 basis points overnight and got to thither 2 basis points now. I don’t see a recession on the rise in the U.S. but nonetheless that’s where we’re going and we think rates are going to go lower from here.”
Ian Lyngen, fully of U.S. rates strategy at BMO Capital, says this time looks different than the last.
“I’m certainly worried down a recession, I’m worried about a recession in 2020. I think what makes this particular event different than inversions we’ve seen in the prior is [Fed Chair Jerome] Powell has already cut once. Typically, we don’t see an inversion until after the point at which the market demands the Fed needs to cut but they haven’t yet.”
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