Evening Brief – 04.05.23
No matter which direction you look yields along the US Treasury curve have been dropping precipitously over the past three days. The catalyst on Monday was the March ISM Manufacturing report, which showed a drop to 46.3 from 47.7, and below expectations of 47.5 – that is the 5th straight monthly contraction and the lowest since May 2020.
On Tuesday, it was the JOLTS data, which registered a reading below 10 million, the lowest level since May 2021. Today it was ISM prices paid, a key manufacturing component, which came in at its lowest level since May 2020 at 59.5, and ADP data, which showed private sector hiring rose by just 145,000 in March, down from 261,000 in February and below the estimate for 210,000.
This has pushed the 10-year note yield to its lowest level in seven months to below 3.30%. The yield had a close of 4.24% on October 24. Also, consider this: on March 3, the 2-year note yield had a close of 5.07%, it is now roughly 3.75%, and the 2s/10s spread is at –48bps, the most inverted since the 1980s. The 2-year/3-month T-bill spread is at –109bps, the most inverted since the 1980s as well.
And arguably the definitive recession trade – the 3-month T-bill/10-year yield – is trading at -155bps.
It’s difficult to put a good spin on these numbers. Maybe this is just catching up to some overly good data in recent months (The Citi Economic surprise index shot from -10 in early February to above 60 and was still at 48 before today’s data).
Meanwhile, inflation isn’t coming down as fast as the Fed would like, which isn’t being helped by oil, with WTI surging to $80 from $69 in less than two weeks. Ultimately the economy appears to be slowing and much of the recent data seems to be backing this up.