Recently, 30y-5y and 10y-2y spreads are approaching upside down, which is only one step away from upside down. In addition, 10y-3y, 5y-3y and 10y-5y interest rates have been inverted. We believe that the reason for this upside down is that the short-term interest rate of US bonds has risen significantly after the hawkish remarks of the Federal Reserve.
The special interest rate hike of the Federal Reserve occurred in the previous period, but the interest rate hike occurred in the previous period. For this upside down, the market has two concerns. The first is the concern about economic recession. Since 1966, after the upside down of the yield curve, there is a high probability of economic recession in 6-24 months; The second is the concern about the rhythm of subsequent interest rate hikes by the Federal Reserve, which is deeply caught in the dilemma of high inflation and upside down interest rate spread. We believe that for the first concern, a more comprehensive upside down of the yield curve will predict the future economic recession. At present, the 10-year and 3-month interest rate spread is still at a high position. It is expected that the possibility of a comprehensive upside down this year is low, so the possibility of a future economic recession is low. For the second concern, Powell paid more attention to the near term forward spread, that is, the difference between the forward yield of three-month US bonds and the spot yield of three-month US bonds after 18 months is still very large, which will not affect the subsequent interest rate hike of the Federal Reserve for the time being. According to cmefedwatch, the market believes that the probability of the federal target interest rate falling in the range of 1.25% - 1.5% in June is 65%.
