• Last week, for the first time since 2019, we saw a situation where the yield on the two-year US Treasury bond exceeded the yield on the ten-year bond. This inversion, although at around 2.39%, lasted only a short time and after a while, the 2Y-10Y spread returned to 5 basis points. The last time we saw a yield curve inversion in the 2Y and 10Y for a short period of time was in 2019, and for a longer period of time, we saw inversions in 2006 and 2007.
• Talking about the real threat of a recession, and especially estimating its timing, is quite difficult, but on the other hand, no recession has occurred without an inverted yield curve. However, it is not only the 2Y-10Y spread that is experiencing inversion. 20Y yields already surpassed 30Y last October and something similar happened between 5Y and 30Y bond yields. Nevertheless, not all economists believe a recession is imminent. Some argue for ongoing QE around the world and in the US, while others point out that this inversion was too short, so there is no point in addressing it with any care. However, given the developments in Ukraine and the still rising inflation, ignoring these signals is not entirely appropriate.

What to watch out for this week

• The most anticipated event of the coming week will be Wednesday’s minutes of the Federal Reserves March meeting, which could hint to investors at the possibility of an expected 0.5 percentage point interest rate hike in May and also hint at details regarding the shrinking of the U.S. central bank’s $9 trillion balance sheet. Friday’s data on the vacancy rate points to further hikes, with several Fed officials, including Chair Jerome Powell, already expressing that they will opt for a more aggressive approach at future meetings due to the threat of rapidly rising inflation. Several Fed officials are expected to speak during the week, including Fed Governor Lael Brainard, Minneapolis Fed President Neel Kashkari, New York Fed President John Williams and St. Louis Fed President James Bullard.
• Other important economic releases from the US will be factory orders on Monday, non-manufacturing PMI from ISM and trade balance on Tuesday, and also initial jobless claims on Thursday.
• But it’s not just the Fed that will be of interest to investors. The ECB will publish the minutes of its March meeting, with rising inflation putting pressure on monetary policy tightening. The ECB last month surprisingly announced speeding up plans to withdraw stimulus measures. The Reserve Bank of Australia will decide on interest rates on Tuesday, with expectations that it will keep its rate on hold. The Bank of Canada on Monday is to publish its business outlook survey and positive data may convince investors of the possibility of a half-percent rate hike at a meeting scheduled for the 13th of April.