2 and 10 Yields: Recession Level, Trades and Targets

When the Fed first raised 25 points in March 22, the 10 year yield low was 1.675 and 2 year at 1.2524. The 10 year traded at or below the 10 year monthly average while the 2 year traded between the 10 and 9 year monthly average. The 2 year maintained not only a higher starting point from the 10 year but outpaced the 10 year by 3.19 Vs 2.15 points.


2 Year Crossed above 10


The 2 year crossed above the 10 year in the final analysis rather than the 10 year crossed below. The 10 year lacked the power and range to maintain its place above the 2 year as it traded to its maximum top. The 2 year cross above the 10 was an easy proposition as it contains wider ranges. If the 10 year contained proper ranges, inversion was impossible and possibly indications to recession.
Inversions


The first inversion occurred in April as the 10 year traded to 2.991 highs and crossed above the 2 year at 2.78. The 2 year then crossed above the 10 year in July at 3.27 and 10 year at 3.106. The 2 year overall ascent reached 4.87 in November while the 10 year traded to 4.33 in October on a 1 month lag.


Inversion continues today as the 10 year at current 3.87 trades below every yield from 1 month to the 30 year and below the 2 year at 4.42. The 2 and 10 spread at -55 coincides to the 0.55 slope from an absolute value basis and informs a top is in place for the 2 and 10 year yield. Most vital 10 year at 3.87 and 3 month at 4.37 also factors -0.50.


Another view is the 10 year highest ranges 1.0214 and 0.9348. Divide 2 = 51 and 46 at 1/2 ranges while the 2 year 1/2 ranges at 1.6061 and 1.4775 factors as 80 and 73.


The 2 and 10 correlate at +92% to inform rises and falls travel together for double trades.


The 10 and 2 year traded on a massive rampage higher to break every monthly average from the 10 year to above the 1 year. Both the 2 and 10 trade severely overbought.


10 and 2 year Averages and Targets


The 10 year averages begin from 2.9953, 2.2247, 2.1332, 2.1080, 2.0960 and 2.0484 at the 5 year monthly average. The average at 2.133 is actually today’s 10 year monthly average however due to the 10 year’s quick rise, 2.1332 moves to the 3 year monthly average to properly rebalance averages.


Targets are located at 3.72, 3.1595, 2.9720, 2.9467, 2.8585, 2.8367, 2.8319, 2.8143, 2.7782, 2.7537,.
The 2 year averages are located at 3.0921, 1.6894, 1.6349, 1.6349, 1.6004, 1.4901, 1.4098. The bottom is located at 1.1882 while the 5 year is found at 1.6349.


Targets are found at 4.1813, 3.2955, 2.9119, 2.7701, 2.7412 and 2.7100. The lowest target tracks below to 2.3478 and 2.2375.


The formal and first inversion cross occurred at 2.33. The 2 year as the Fed’s Policy rate at 4.42 led the way upward and due to its high range ability must lead the way lower to cross below the 10 year. The 2 year at 4.42 coincides to SOFR at 4.30, Fed Funds at 4.33, General collateral rate at 4.26. SOFR naturally followed the 2 year higher since March.


Yield Curve Average


The current yield curve averages sits at 4.2041 and trades between 1 to 3 month, 2 to 3 year, 3 to 5 year, 5 to 7 and 20 to 30 year. The average holds through next weeks trade unless a move about 30 points is seen.


Recession Probability


From daily Fed probabilities to recession factored from the 10 year to 3 month calculates to 38% for November and 38% as of December 30 and the last trade day for 2022. Estimates are derived from a slope at 0.5333 and coefficient at 0.6330 and the same as my 0.55 slope. Recession probabilities remain very low..

Brian Twomey