2023-10-27 06:20:09
JPMorgan Chase said that as the Federal Reserve has paused following raising interest rates in July, long-term U.S. Treasury bond yields are rising, which is not a typical market reaction. It should be noted that if the current trend is to repeat the performance of 1969, then the United States may soon see an economic recession.
In a report released on Wednesday (25th), JP Morgan analysts pointed out that in the past 12 Fed tightening cycles, the bond market generally experienced bull market steepening following the last interest rate increase, that is, short-term interest rates fell rapidly. on long-term interest rates.
But it was different in 1969. At that time, there was a steepening of the bear market, that is, interest rates rose instead of falling, and long-term yields climbed faster than short-term yields. The unusual pattern is reflected in current bond markets, where a historic rout in U.S. Treasuries has pushed yields on 10- and 30-year notes above 5%.
Given that the 25 basis point rate hike in July may be the last of this tightening cycle, the experience of 1969 can provide some enlightenment for the present.
JPMorgan added: “That said, in the 1969 cycle, the recession began three months following the last rate hike, suggesting that the current bear market steepening is likely to continue until a more pronounced signs of slowing growth.”
However, continued strong economic data has so far masked signs of recession, with U.S. GDP growing at the fastest pace in two years in the third quarter. Data released by the U.S. Department of Commerce’s Bureau of Economic Analysis on Thursday showed that the preliminary value of U.S. GDP in the third quarter was 4.9%, a new high since the fourth quarter of 2021, higher than market expectations of 4.3%, and the previous value was 2.1%.
In addition, JPMorgan Chase also stated that the economic recession that followed the 1969 tightening cycle had a negative impact onS&P 500 IndexThe earnings impact on constituent companies was relatively modest.
The analysts added, “In terms of risk assets, once signs of recession begin to emerge, using the 1969 U.S. recession as a reference, we find that stocks fell within six months of the onset of the recession, but recovered quickly therefollowing. “
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