We might have just reached an inflection point in the market-economy mechanism. For the first time since 2008, short-term Treasury yields have just reached the same level as equity dividend yields. It is not even the two-year Treasury we are talking about, but rather the three-month, whose yield is now about 1.9%, the same as equities’. The convergence of a number of different yield rates is a strong warning sign of a pending recession. JP Morgan comments that “What has been surprising this year has been the degree to which cross-asset performance has behaved as if the late cycle had already arrived, despite little material change in the growth outlook”.
FINSUM: This is an important indicator. Both bond and stock investors are moving ahead of the economy itself, but their actions seem likely to create the reality they fear.