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Market Roundup: 2s10s Inversion Recession Signal Flashing

US TSYS
Tsys trading firmer for the most part, currently off early session highs with 2s and 5s mildly weaker now as 2s10s yield curve falls to new 40 year inverted low of -86.063 this morning.
  • Protracted periods of inverted yld curve signaling market expectations of coming recession in the near term.
    • Tsy 2s10s curve spent much of the period between late 1978 through mid 1982 inverted territory, a precursor to recession that ended in late 1982. Yield curve inversion saw wide variance in 1980 after spd fell to -241.65 low in March 1980 and skyrocketed to 130.0 by early July before re-inverting again.
  • Short end, meanwhile, gains slightly vs. mid-late 2023 futures as markets price in continued rate hikes: Fed funds implied hike for Mar'23 at 26.1bp (+0.7), May'23 cumulative 44.9bp (+1.3) to 5.031%, Jun'23 54.7bp (+2.4) to 5.129%, terminal at 5.14% in Jul'23/Aug'23.
  • Tsys extended early session highs following higher than estimated weekly claims of 196k (190k est) and continuing claims 1.688m (1.660m est.).

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