‘Bonkers’ Bond Trading May Be Sending a Grim Signal About the Economy
Wild swings in the Treasury market are unlike anything many investors today had seen. They’re also potentially warning of a recession.
By Joe Rennison, The New York Times, March 24, 2023
In the typically tame market for government bonds, investors have been left reeling from some of the most chaotic trading conditions they have ever seen, entrenching concerns about the broader economy since the collapse of Silicon Valley Bank.
It’s the kind of trading that makes the often more turbulent stock market seem calm: While the S&P 500 has edged higher in the two weeks since the federal authorities took control of SVB, parts of the government bond market have been subjected to moves not seen since the 1980s, when the economy fell into recession after the Federal Reserve’s last major fight against inflation…
in the past two weeks, the yield on two-year Treasury notes has consistently moved within a range of 0.3 to 0.7 percentage points each day.
That may still seem incremental, but it’s as much as 15 times the average over the past decade.
The largest day-to-day move in yields this month, when the two-year yield on March 13 slid to 3.98 percent from 4.59 percent, was the biggest lurch lower since 1982 — worse than anything traders witnessed in the 1987 “Black Monday” stock market crash, the bursting of the tech bubble at the turn of the century or the 2008 financial crisis…[end quote]
These are boring ol’ Treasuries we’re talking about here! The yields have dropped like cray-cray-crazy in the past week!
Either the bond market is sure that the Fed will cut the fed funds rate before they planned to because of last week’s banking crisis…or there really is a recession on the way.
Wendy