In the Market: Economic surprises are messing with the market's favorite recession predictor

Two accused teenagers to remain in custody for at least two more weeks | SaltWire #newsupdate #news - A bond market anomaly that has reliably predicted a U.S. recession in the past may normalize this year in a highly unusual manner. It's a worry for markets.

A bear steepening, which briefly reared its head in October, could resume at some point this year, leading the yield curve back to normal through a rarely trodden path. While a normal yield curve is good for banks, a bear steepening would be hard to trade and pressure stocks, leading possibly to market swings.

Harvey pointed out that the time it takes for a downturn to manifest after inversion varies, and that in the four most recent inversions the curve turned positive before a recession started.To be sure, a bull steepening could also still happen. High policy rates could still slow down the economy, weaken the labor market and hurt consumers, leading the Fed to cut rates. High interest rates could also cause a market ruction, like a banking crisis, that forces the Fed to lower rates.

The term premium had turned positive during the October bear steepening, but fell into negative territory later that year as the Fed pivoted to guiding the market on lower rates. It turned positive again this month, most recently on April 24.Pramol Dhawan, head of Pimco's emerging markets portfolio management, attributed an increase in the price of gold over its fair value due to demand from official institutions for safe-haven assets.

More likely, a bear steepening would be a slow process with uncertain timing. That, however, makes it harder for traders.

Source: News Formal (newsformal.com)

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