###POV: LOOK PAST A 2S10S INVERSION: The....>

US TSYS: ###POV: LOOK PAST A 2S10S INVERSION: The inversions in the short end vs

belly (2s5s, 3s5s) of the Tsy curve are sparking recession talk once again, but

this looks premature (Charts: http://marketnews-m.objects.xtenit.com/210.JPG)

- The better-known 2s10s, at cycle lows of 13.2bps, will soon come into focus.

- In December 2005, the most recent time the 2s10s curve inverted for the first

time in the economic cycle, it took 2 years for a recession to begin, while

equities and key macro indicators such as payrolls continued to rise alongside. 

- We saw similar patterns in Dec-88 and Jun-98 (see "MNI Analysis: Futures

Market Points To Fed Rate Cuts In 2020" - July 16, 2018).

- In the 2005 episode, 10-Yr yields fell from 4.66% (then-cycle highs) to 4.33%

over 6 weeks to the inversion date of Dec 27th; 2s fell from 4.46% to 4.34%.

- In the next six months? Yields rose strongly, to 5.28% in 2s and 5.24% in 10s.

- Notably, that was the peak of the Fed hiking cycle at 5.25% (June 2006).

- In other words, if history repeats, we could see Tsys continue to sell off

into mid-2019 as the Fed remains on auto-pilot, before hitting the brakes.

- Rates markets may be onto this: EDM9/EDM0 spread at flattest levels of cycle.