US | Long-term Treasury yields steeped in recession fears

Flatter yield curve on rate hike-frontloading and increased growth outlook concerns; are markets about to price in a hard landing as inflation does not (yet) give in to Fed action?

Key points

• Key points:
• With the Fed set to continue front-loading rate hikes to take the fed funds rate above neutral levels by year-end, the current cycle will be the fastest in more than three decades.
• Both the 2-year and 10-year yields reached c. 3.5% before pulling back somewhat on growth outlook concerns.
• Overall, current Treasury yield spreads seem to start to price increased recession odds.
• Market-based inflation expectations point to continued confidence that, over the longer term, the Fed will be able to bring down inflation to the 2.0% target.
• Shortly after the June CPI release, the probability of a 100 bps hike climbed up to 80%, but as of now, futures markets are pricing a 75 bps hike next week.

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