Bloomberg/John Authers/8-9-2022
“Again, extreme-low term premiums, for reasons that don’t seem to be tied to the economy, tend to imply that this could be a false signal. Bond yields are obeying the normal rules of supply and demand, which are usually driven by the economy — but on this occasion, maybe they aren’t sending such a clear signal. An inverted curve doesn’t cause a recession, as Burgess points out, but usually the forces that create a recession also drive an inversion. This time, maybe we can ignore the yield curve. But to quote the cliche, that does commit economic bulls to saying that it’s different this time, and those are the most dangerous words in finance.”
USAGOLD note: The bond market is sending confusing signals and Authers attempts to sort out why in this analysis. He says that the wage-price spiral remains intact no matter what, and sees quantitative tightening, which has yet tom fully launch, as a “very, very frightening” prospect. After reading this deep dive, one comes away with the notion that the bond market isn’t really telling us much at all. Instead it reflects the reigning confusion over where we are headed.
