Bond markets pricing in a possible recessionary scenario

9月9日

Spread between US 2 year yield and Fed Funds Rate is one of the key indidcators to watch out for the state of the economy. Fed Funds Rate is an overnight rate. Historically, before any recessionary scenarios the spread was seen moving to negative territory, during Middle East Crisis in 1989/1990, dotcom crisis in 2000/2001 and Credit crisis in 2008.

Currently, the spread is at -1.67%, second lowest in history only to 2008 Credit crisis which was at -1.76%. This leads to a strong conclusion that the interest rate markets are possibly pricing in a recessionary scenario.

Interesting times ahead...