Bond Trading May Be Sending a Recession Warning

That may still seem incremental, but it’s as much as 15 times the average over the past decade.

The largest day-to-day move in yields this month, when the two-year yield on March 13 slid to 3.98 percent from 4.59 percent, was the biggest lurch lower since 1982 — worse than anything traders witnessed in the 1987 “Black Monday” stock market crash, the bursting of the tech bubble at the turn of the century or the 2008 financial crisis.

“These are monster moves for single days,” said Sonal Desai, chief investment officer at Franklin Templeton Fixed Income. “It’s completely bonkers.”

Volatility in Treasuries

When traders talk about gyrations in any market, they describe it as volatility. Loosely, that refers to the size and speed of movements in the market. In the stock market, one measure of volatility — the Vix Index, also known as Wall Street’s “fear gauge” — rose over the past couple of weeks, but not to levels that conveyed systemic panic. Its still well below where it was in past crises, like the start of the coronavirus pandemic or 2008. It’s not even at its highest level in the past 12 months.

But in the Treasury market, a similar volatility measure has hit levels last seen at the end of 2008, just a couple of months after Lehman Brothers’ fall triggered economic pandemonium.

“What we have gone through, I have never seen it before,” said George Goncalves, head of macro strategy at MUFG Securities. “It was off the charts.”

Article source: https://www.nytimes.com/2023/03/24/business/treasury-market-swings-economic-signal.html