The US Treasury 10-year Yield Index (TNX) returned to a negative trend for the first time since January of last year.
US Treasury yields declined over the last week. The US Treasury 10-year Yield Index (TNX) fell to a negative trend for the first time since January of last year. The two-year yield index (US2YR) returned to a sell signal when it broke a triple bottom at 3.63%.
Fed funds futures are now pricing just over a 60% chance that there will be no rate hike at the Fed’s May meeting and a better than 90% chance of at least one 25 bps cut by the end of the year and a better than 60% chance that the target rate will be at least 50 bps lower than its current level.
The two-year/10-year (USYC2Y10) spread has widened significantly since the beginning of March. On the surface, widening of the spread may seem like a positive development – inversion of the two/10 spread is considered to be a recessionary indicator – so widening of the spread (reducing the level of inversion) is the yield curve moving towards a more “normal” state. However, after being inverted for an extended period, the two-10 spread has often widened shortly before the beginning of a recession.
High yield spreads have also increased over the last month. (CBUS10YRSPREAD), which measures the spread between US Treasuries and high yield bonds, has gone from 4.5% in February to 5.5% on its default chart. CBUS10YRSPREAD remains well below levels seen during 2008 and 2020, however, the increasing spread is a sign of a risk-off stance with regards to credit.
The fixed income rankings in the Asset Class Group Scores show strengthening in fixed income. There are now more than 20 groups in the “green zone” – with scores of 3.0 or better, the highest number of fixed income groups above that threshold in quite some time. It is also notable that several of the more risk-on groups– high yield, corporates and preferreds – which are often correlated with equities, sit towards the bottom of the rankings, with preferreds and convertibles occupying the bottom two spots.
