The Curve Inverts, and a “Growth Hawk” for the Fed

Moore is dedicated to growth above all, which overcomes any weaknesses in his long and checkered record as a pundit. Trump is right to pick a new governor who embodies his outlook, which Powell promised and failed to do. The 3-month/10-year Treasury spread inverted on Friday, but the 2-year/10-year has not yet. The 3-mo/10-year has a slightly better track record as a recession indicator, but not much. If the 2/10 inverts, this will be the first cycle in which it did not invert first. Equity markets are contradicting the seeming pessimism of bond markets. Chinese stocks are leading the world, indicating resolution of the US/China trade war. Forward earnings have begun to substantially bounce back. Oil has stabilized and TIPS spreads have recovered. If bonds are looking at a recession, stocks act as though it was only a near-miss. We think the balance of evidence favors the more optimistic view, and that long-term yields are likely to move higher from here.