Indicator supporting hard landing scenarios in the US

The US 2-30 year yield curve points to the most inverted curve in 22 years, supporting hard landing scenarios in the country's economy. Yield curves reflecting soft-hard landing scenarios in the economy are increasingly pricing in a hard landing scenario for the US. The US 2-year bond yield rose 35 basis points above the 30-year bond yield, capturing the largest difference since 2000. This week, the two-year bond yield rose 23 basis points to 3.79 percent. The 30-year increased by only two basis points to 3.46 percent in the same period. According to Vanguard Portfolio Manager John Madziyir, such an inverted yield curve indicates that the risk of a hard landing scenario has increased after the inflation data. Although the 5-30 and 2-10 year differences are more commonly followed for recession, the yield difference between the shortest and longest maturities of US bonds creates an economic picture that may be in trouble in the long term. As of Wednesday, the swap market is pricing in an 80 basis point Fed rate hike in September. This suggests that 75 basis points is fully priced in, while 100 basis points is within the realm of possibility. Some institutions, including Nomura, had raised their September rate hike forecast to 100 basis points. JPMorgan disagrees. JPMorgan Securities Chief U.S. Economist Michael Feroli said that a 100 basis point hike is unlikely to happen, adding, “Good drivers don’t suddenly increase their speed as they approach their destination.”