The Treasury yield curve continued to invert as short rates climbed higher and long rates fell. The 1-Year climbed to 3.14%, the 2-Year rose to 3.10% while the 7, 10, 20 and 30-Year Treasury yields all fell (see table below).

The Treasury market is telling us that it expects a near-term recession by way of the inverted yield curve.

• We believe that the U.S. is in a recession given two consecutive quarters of negative GDP (Q1 and Q2). We believe that Q3 will also result in a negative GDP print when Q3 GDP numbers are released in October.
• Despite short rates in excess of 3% the Fed Funds Rate stands at a paltry range of 2.25-2.50%. In what world that range is “neutral” as per Fed Chairman Jerome Powell is not a world of which we are familiar. The neutral rate would technically be a rate that is approximately equivalent to the prevailing CPI (9% in our reality, even if Chairman Powell chooses to exist in an alternate reality).

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