Renowned investor, Jeff Gundlach, has cautioned that the current turbulence in the bond market could potentially herald an economic recession.
As Business Insider reported, Gundlach, founder of DoubleLine Capital, indicates that the odds of a severe economic downturn are growing. He points to the rapidly diminishing gap between the 2-year and 10-year U.S. Treasury yields as a significant indicator.
“The US Treasury yield curve is de-inverting very rapidly,” Gundlach stated. He suggests that this should act as a “recession warning” for everyone, not merely those on “recession watch.”
“If the unemployment rate ticks up just a couple of tenths it will be recession alert. Buckle up,” his post on X, formerly Twitter, read.
Long-term bond yields have seen a significant increase recently. This is due to investors’ growing belief that the Federal Reserve will maintain high-interest rates throughout much of 2024 in an effort to subdue inflation.
The resultant narrowing of the yield gap between 2-year and 10-year Treasuries to a mere 33 basis points has resulted in the tightest yield curve since late March.
This rapid de-inversion of the yield curve, which has been inverted for the past 226 trading sessions, has historically been a precursor to each US recession since 1969, according to data from the London School of Economics.
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