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Despite rising risks, yield curve not signaling US recession: S&P

Despite rising risks, yield curve not signaling US recession: S&P

Economic uncertainty has increased but inversion of yield curve does not indicate near-term danger, says ratings agency

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Despite rising risks due to the Russia-Ukraine war, record inflation and the Federal Reserve’s monetary tightening, the 10-year/two-year yield curve inverting is not yet signaling recession, S&P Global Ratings said on Wednesday.

The 10-year/two-year yield curve inverting in the US market during recent weeks has worried investors, triggering a pessimistic view of US economic outlook and expectations of a possible recession.

However, the ratings agency said it does not believe the inversion of the yield curve indicates any near-term danger, but said uncertainty over the economic outlook has increased as inflation touches its highest level in 40 years.

“As prices continue to soar and the Russia-Ukraine conflict makes inflation pressures even worse, the Federal Reserve is sharpening its tools to fight the run-up in prices,” read an S&P statement.

“Keep in mind that an inverted curve is a signal that markets expect the Fed will need to loosen monetary policy in the future, and the overarching reason is in response to fears that a slowdown in economic conditions could lead to recession. In other words, an inverted curve reflects market recession fears.”

 

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