Yields Move Higher While LEI Still Signals Recession

  • Yields are higher again this morning as the combination of hope for a debt ceiling deal, hawkish Fed commentary, and better-than-expected jobless claims all have Treasuries on the back foot as the week draws to a close. The 10yr is currently yielding 3.71% while the 2yr is at 4.35% as odds of another rate hike in June increase (more on that below).


  • With no data releases today the spotlight belongs to Fed Chair Powell who will be on a Fed-sponsored panel discussion along with former Chair Ben Bernanke at 11am ET. We don’t expect Powell to tip his hand on a rate decision for the June FOMC meeting  but ears will be listening intently for any hints as to his lean.


  • While odds of a June rate hike last week were near zero, they have consistently climbed this week and currently stand over 40%. The latest Fed speak was from Dallas Fed President Logan yesterday who said she didn’t yet see a case for a pause. Not that one Fed president gets to make the call, the Fedspeak this week has seemed to put the June meeting back in the “live” category more than might have been the belief last week. It will likely come down to the May jobs and CPI reports, with the latter coming only one day before the rate decision.


  • Meanwhile, the debt ceiling debate continues with some positive comments from both sides that a possible vote could come next week. We’ll believe that when we see it. We still think there are hard differences between the parties and that any successful bill will come at some point closer to the x-date which remains a moving target but seems to be June and if the Treasury were to get lucky it could stretch into July.


  • Yesterday, April existing home sales came in just under expectations at 4.28 million annualized vs. 4.30 million expected and 4.44 million in March. More importantly, house prices dipped  1.7% YoY as the rate hikes continue to dog the residential market.


  • Also out yesterday, was the latest Leading Economic Indicators Index from the Conference Board.  The index declined 0.6% for April following a decline of 1.2% in March. The LEI is down 4.4% over the six-month period between October 2022 and April 2023—a steeper rate of decline than its 3.8% contraction over the previous six months (April–October 2022) and is now down for the thirteenth straight month. The graph below shows the YoY change in the index and the near perfect record in calling recessions when it dips below zero for any length of time and certainly when it gets below -5%, and we are well below that now.


Leading Economic Indicators Index – Signaling a Recession

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 4.85 4.56 4.54 4.58 4.87 5.33
0.50 4.84 4.53 4.48 4.46 4.72 5.22
1.00 4.83 4.50 4.45 4.42 4.63 5.09
2.00 4.49 4.39 4.34 4.52 NA
3.00 4.30 4.45 NA
4.00 4.41 NA
5.00 4.37 NA
10.00 NA

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Published: 05/19/23 Author: Thomas R. Fitzgerald