BMO Sees 2s10s Inversion, But Not Necessarily Imminent Recession

BMO wrote today that they expect 2s10s to invert from the level of 28bp at publication time (and 23bp now) , "consistent with the fact that the front-end of the curve is tied to US monetary policy expectations, while the 10- and 30-year are set by global macro factors of growth and inflation with an embedded risk-off premium."

• But that doesn't necessarily mean a recession is coming:
• "it is also worth acknowledging that not all curves are created equal. The Fed’s research on the topic gives the most credit to 3-month/10s, which is presently at ~190 bp and has ample room to compress in sympathy with the Fed’s future hikes. Additionally, almost by definition of economic cycles, the Committee will hike the economy into a recession, whether the ‘blame’ for the slowdown lies with monetary policymakers, subprime mortgages, or a global pandemic is a debate that can only be conducted with the benefit of hindsight. As such, while we are very much on board with 2s/10s revisiting negative territory, this does not necessarily ensure that an economic contraction is in the offing."