According to BlockBeats, on September 10, Nicholas Colas, co-founder of DataTrek, said that the shift in the long-term expected relationship between 2-year and 10-year U.S. Treasury yields was not the only recession warning issued by the bond market last Friday.
The sharp drop in the 2-year Treasury yield has also pushed the spread between short-term bills and the federal funds rate to its most negative level in at least 50 years. Colas noted that during this period, the spread between the two short-term rates has only fallen below -1% three times, and each time this happened, a recession began within a year. However, Colas does not believe that this will inevitably lead to a recession. He said that a recession needs a catalyst to start, and so far, nothing has happened in the United States that could trigger such a sharp economic slowdown.
Instead, the inversion suggests that bond traders are increasingly concerned that the Federal Reserve is not reducing borrowing costs in a timely manner amid a slowing labor market. “The bond market is saying the Fed is way behind the curve on rate cuts,” Colas said in a note Monday.
