Wolf Richter writes….The next recession, when it finally occurs, may be a different animal altogether.
On Tuesday at the close of the market, the yield curve sagged further in the middle like a limp noodle, with these characteristics:
- At the short end, the 1-month yield rose to 2.46%, near the top of its recent range, and near the upper end of the Fed’s target range for the federal funds rate (2.5%).
- In the middle, the 3-year and 5-year yields both dipped to 2.18%, respectively the lowest since Jan. 2018 and Dec. 2017
- At the long end, the 10-year yield dipped to 2.41%, lowest since Dec 29, 2017, below the 1-year yield and shorter maturities; but it remained above the sag in the middle, including the 2-year yield, which also dropped.
- At the far end, the 30-year yield dipped to 2.86%, the lowest since Jan 2018, but remained above all the rest.
This produces a beautiful middle-age sag, so to speak, that started forming late last year and has been deepening in recent weeks. The chart below shows the yield curves on six dates. Each line represents the yields on that date, from the 1-month yield on the left to the 30-year yield on the right. The steeply ascending green line represents the yields on December 14, 2016, when the Fed got serious about rate hikes. The deeply sagging red line represents the yields on Tuesday, March 26:
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https://wolfstreet.com/2019/03/27/yield-curve-spaghetti-the-weird-sag-in-the-middle/