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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.

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About Joe Palmisano

Joe Palmisano is Editorial Director for Connect Money, where he brings nearly three decades experience of market insights as a financial journalist, analyst and senior portfolio manager for leading financial publications, advisory firms, and hedge funds. In his role as Editorial Director, Joe is responsible for the selection of content and creation of daily business news covering the financial markets, including Alternative Assets, Direct Investment and Financial Advisory services. Before joining Connect Money, Joe was a financial journalist for the Wall Street Journal, regularly publishing feature stories and trend pieces on the foreign exchange, global fixed income and equity markets. Joe parlayed his experience as a financial journalist into roles as a Senior Research Analyst and Portfolio Manager, writing daily and weekly market analysis and managing a FX and US equity portfolio. Joe was also a contributing writer for industry magazines and publications, including SFO Magazine and the CMT Association. Joe earned a B.S.B.A. in Finance from The American University. He holds the Chartered Market Technician (CMT) designation and is a member of the CFA Institute.