Recession Watch: 10-Year Treasury Yield Chases Record Low

Is this a great time be in the market for a mortgage or what?  Well, as long as you don’t consider what the 10-Year Treasury yield is telling you about the economy.  As “Sell in May and go away!” worked yet again, the 10-Year Treasury yield is being driven down due to safe-haven investors trying to avoid Europe.  The yield may also be warning you that the next recession is almost upon us.

The prior low was said to be 1.6714% back in September according to Bloomberg data, and the yield hit 1.6713% earlier this morning.  That appears to be the low back to 1953. The iShares Barclays 7-10 Year Treasury (AMEX: IEF) exchange traded product is likely to be challenging new highs in share price today of $107.47.

When you see yields heading south, you usually see stock prices heading lower.  This morning we are seeing a drop of more than 11 points in the S&P futures to 1322 with about thirty minutes until the market opens. Junk bonds may have stabilized from the selling panic seen earlier in May due to outflows, but S&P noted just yesterday that its benchmark speculative-grade spread has widened out to 690 basis points on Tuesday.

The bond market is often deemed as the smarter market when compared to stocks. Unfortunately, this is not just safe haven trading.  The bond market is signaling a higher chance of the next recession hitting the U.S. each day.

JON C. OGG